Direxion Daily Energy Bull 2X Shares (ERX)

[frenchee]

$40 was the previous oil ceiling ... With crude oil having fallen $100 from its summer peak, and trading back below $50, the big question is whether there exists some price level that could stem the oil plunge and act as a possible floor beneath that market. My best guess is that such a level would be at $40. The below chart gives a clue why. One of the basic premises of chart analysis is that a previous resistance level, once broken, usually acts as new support level below the market. In other words, previous ceilings become new floors. The monthly bars plot the price history of crude since 1990. The flat line shows that $40 acted as a ceiling during 1990 and again during 2000 and 2002. [Crude also peaked at $40 in 1980 at the end of the commodity boom of the 1970s]. That's why crude's rise above $40 during 2004 was so significant because it represented a historic breakout through a resistance barrier that had never been exceeded before. Given the historic importance of the $40 level, I believe that it's a logical spot for new support to materialize in the oil market. Crude fell below the $45 level in today's trading.