- Dugald Malcolm, Montreal, Canada

OIL

The price of oil trades at not far from where it did at this time last year. In fact, aside from a slight pop in prices during the spring, oil prices have been trading sideways. A trading range of $77 +/- 9% , as shown on the chart below, has been in place over the last 12 month period.

That sideways movement, however, might soon be coming to a bearish end. In examining the chart a little closer we note that the sideways trading range has also produced a potential Head-and-Shoulders Top formation with a neckline around the bottom of the trading range at around $70. The bearish pattern requires a breach of and 3% close below the neckline to be confirmed.

In the meantime, however, several bearish signals have already occurred. Together, they point to an increased likelihood of a violation of the neckline and a confirmation of the Head-and-Shoulders Top. One of the bearish signals was the Death Cross of the moving averages in June and another is the inability of oil prices to remain over their 200-Day Simple Moving Average. Another bearish indicator lies in examining the MACD, which has just recently rolled over and lies below the Equilibrium Line.

Natural Gas

Natural gas, unlike oil, has not been in a sideways trading range. It has been in a clear trend over the last year and that trend is down. Lower highs and lower lows continue to plague natural gas. Just when you think prices are making a recovery, such as at the end of 2010 and then again in June, prices seems to nosedive.

One similarity natural gas does share with oil are the bearish signals given by the Simple Moving Averages. The 50-Day formed a Death Cross as it broke below the 200-Day SMA in April. Also, despite two attempts this summer, prices have failed to cross and stay above the 200-Day SMA.

Further weakness looks to lie ahead for prices as the Stochastic has rolled over and the MACD looks poised to do the same.