In the trading world are two important concepts that are essential for the success of any trader:
A support level is a price level where the price tends to find support as it is going down. This means the price is more likely to “bounce” off this level rather than break through it. However, once the price has passed this level, even by a small amount, it is likely to continue dropping until it finds another support level.
A resistance level is the opposite of a support level. It is where the price tends to find resistance as it is going up. This means the price is more likely to “bounce” off this level rather than break through it. However, once the price has passed this level, even by a small amount, it is likely that it will continue rising until it finds another resistance level
To explain this in simple words imagine a ball bouncing between the roof and the floor. The floor will be your support and resistance will be your roof. The ball will be keep bouncing back and forward, until it breaks the floor, or the roof. If it breaks through the floor, it’s going to go lower. If it breaks through the roof it will go higher.
I bring this up, to explain exactly what’s going on, right now in the Oil market. Months ago, I explained to a friend that Oil has reached his resistance level at 147 and then went down; from there we will experience a big drop in oil prices, and that’s what is happening right now. Oil already broke his support on the 110 $, and it’s about to break his support on the 100$ today as I am writing. If the Oil breaks the 100$, we will see son Oil between the 80$ and 100$.
Here in this graph you could appreciate the downtrend is approaching the Crude Oil, the lines are resistance and support that the “black gold has broken already”.
It’s many factors that have help to prices to come down, but essentially what I mention on my post “Myths of Oil”, wants being moving the price of Oil up, it’s the weak dollar; well the dollar is getting stronger thanks to a weaker euro and yen, but they are other factors that are getting into the picture and I will love to share with you:
It’s amazing how the forces of the free market works, people have shown around the world that is a limit price that they are willing to pay for Oil. It does matter how much OPEC intends to regulate their output of oil. As we all know two days ago they decide to cut their output by 500,000 barrels a day. This did not stop Oil to keep falling down to the 100 dollars. Another factor, that has to do with the decline of Oil prices is like any other commodities and stocks, Oil goes through Cycles. Oil usually hit his highs on the first quarter of the year, and slowdown on the end of the summer, and of course, we are in election time, now the “invisible” hands will help price to go down too.