March 31 (Bloomberg) -- Oil may fall as a “bearish trifecta” of technical indicators leave the market vulnerable, according to an analysis by Auerbach Grayson.
Futures are “overbought” after surging 27 percent from a low of $83.85 on Feb. 15 to a high of $106.95 on the armed conflict in Libya, said Richard Ross, an analyst at Auerbach Grayson, a New York brokerage.
The Relative Strength Index for crude oil formed a “negative divergence” pattern, Ross said, where prices rose to new highs during the same period that the RSI formed a lower high. “While prices appear firm ‘on the screen,’ underlying momentum has ebbed and the technicals may be eroding,” Ross said.
A final bearish indicator is that oil tested an area of $106 to $107 a barrel on Feb. 7 to Feb. 9, and again beginning on March 23, a so-called double-top formation, according to Ross.
“While prices appear strong, the technicals suggest otherwise,” Ross said in a telephone interview. “In our experience, buying crude oil against this litany of bearish evidence which we have outlined is not a strong play.”
Crude oil for May delivery fell 52 cents, or 0.5 percent, to settle at $104.27 a barrel yesterday on the New York Mercantile Exchange.
“Should crude fail around current levels as our analysis suggests, we would expect an initial downside test of $98 in short order,” Ross said. “From there a test of $92 must be considered.”
A settlement above $106 a barrel would invalidate the analysis and set futures up to test the next target of $109, Ross said.
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