When oil sold off on 5/3/12 after looking like it was poised to break out to the upside we noted that it represented a serious cautious sign for the markets. On numerous occasions, we’ve pointed out that oil has led the market over the last few years, higher and lower. While oil has continued to downtrend, taking the markets with it, an even bigger concern of ours is Tuesday’s action on XOM. After staying stubbornly above its April 10th low even while plunged over the last week and 1/2, XOM finally gave way to this key technical level, and dashed any hopes for a “higher low.”
In regards to XOM we said the following on 5/3:
“The silver lining regarding oil and the energy space is that XOM is still near the top end of its most recent channel. At its lowest point today, XOM was still above its low from last week. This is a positive because last weeks low was higher than the previous weeks low so if today’s low holds XOM will have put in back-to-back “higher lows” on its weekly chart.”
-SH @ the close 5/3/12: Bears have to be pleased by action in oil
Well silver lining no more. Had XOM been able to stay above the low end of its channel, it could have been a sign that the sell off in oil was nearing its end. Now that XOM broke down though, it has to be considered as a real “tell” for the oil market. What we mean by that is XOM’s breakdown below its 4/10 low is likely signaling that oil has further to fall. The next clear level of support for XOM comes from its early December trading range between $78-$80. We’ll now be looking to see if XOM starts to experience between $82-$84 (the range of its 4/10 low or roughly thereabouts).
XOM isn’t the only one, just the latest. FCX, the largest copper miner in the world broke below its key support level on May 7th. Ironically, FCX failed to bounce even as copper experienced a nice pop from $3.60 to $3.80. Since that time, copper has fallen below its prior low and has nearly gone red for the year. The continued weakness in FCX could be suggesting that copper is on the verge of a further move lower towards $3.25.
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