Oil's whiplash above $30: dead cat bounce or double-bottom base?

Fri Jan 22, 2016 6:25pm EST
 
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By Marcy Nicholson

NEW YORK (Reuters) - The oil market's roller-coaster ride this year is not over yet, technical analysts warned on Friday, with new lows likely to come after traders catch their breath.

U.S. oil futures for March CLH6 surged 13.5 percent on Thursday and Friday, erasing nearly half the losses racked up since the start of the year as bearish traders cashed out.

While almost no one expects this to mark the start of an extended recovery amid a persistent global supply glut and worries over the Chinese economy, many are asking whether this is finally the end of an 18-month slide.

For some of the analysts it had the hallmarks of a classic dead-cat bounce, a natural pause in the tailspin that had sucked prices below $30 a barrel for the first time since 2003 - with still lower lows lurking in the weeks ahead.

"I don't think we've found a bottom yet," said Fawad Razaqzada, technical analyst for Forex.com and City Index in London. He does not expect prices to extend their recovery to above $35 a barrel, the level needed to prevent a further slide. U.S. crude closed at $32.19 on Friday, up 9 percent.

"For me, there's been no clear technical or fundamental signal that prices have not bottomed out. This is a mere oversold recovery, therefore I think prices will fall back again."

Walter Zimmermann, vice president and chief technical analyst at brokerage ICAP in Jersey City, also expected prices to fall to new lows although he noted that the charts were not decisively bearish.

"It may be a dying cat bounce but it has a little too much vim and vigor to be a dead cat bounce," Zimmermann said. He put key resistance at $34.65 a barrel.   Continued...

 
A natural gas flare on an oil well pad burns as the sun sets outside Watford City, North Dakota January 21, 2016.  REUTERS/Andrew Cullen