Crude Oil prices tumbled

Yesterday, crude oil prices tumbled over USD5, their biggest daily decline in nearly four months, to close at $136.04 a barrel. In just two sessions, crude has lost USD9.25, or 6.4%. From Chart 1 below, we can see that WTIC index is poised to test its immediate uptrend line support at USD132-133 as well as its 50-day SMA at USD130. A break below USD130 level could send this index to its next uptrend line, which stretched back to January 2007 (see Chart 2). That uptrend line support is at USD104-106 and thereafter, the next obvious psychological support would be USD100.


Chart 1: WTIC's daily chart for 6 months to July 8th (source: Stockcharts.com)



Chart 2: WTIC's daily chart for 2 years to July 8th (source: Stockcharts.com)

One of the big casualties of the sharp run-up in crude oil prices is the airline stocks. From Chart 3 below, we can see XAL has been trending lower since August 2007. From an index reading of 50, it has dropped more than 70% to a low of 15 recently. A recovery in the airline stocks should happen if the crude oil prices entered into a correction phase. An initially tepid recovery may blossom into a strong recovery, if the crude oil prices began to violate any of the above-stated uptrend lines.


Chart 3: XAL's daily chart as at July 8th (source: Stockcharts.com)

Here, we have 2 airline stocks that had been beaten down badly. The first stock is Airasia. From Chart 4 below, we can see that this stock is trending lower in a downward channel. Some price recovery has begun over the past few days as the stock rebounded off the lower boundary of that channel. I expect Airsia to test the upper boundary at RM1.00-1.03 soon. A break above RM1.03 would signal the end of its downtrend. Those who are risk-averse should only enter this stock when the downtrend has been taken out.


Chart 4: Airasia's daily chart as at July 8th (source: Quickcharts)

The other airline stock is of course MAS. Like Airasia, it is in a downtrend. The short-term downtrend line resistance is at RM3.20-26. A break above that could see MAS testing its next dwntrend line resistance at RM3.70-80.


Chart 5: MAS's daily chart as at July 8th (source: Quickcharts)