Last week was highly volatile for oil as it marked the end of the month of July with the market down early in the week on fundamentals while technicals provided a clue into the strong finish that followed. The action began last week favoring the Bear Camp as BP released a negative forecast on oil demand along with falling consumer confidence. Selling continued mid-week as the DOE reported a larger-than-expected build in inventories of 5.1 million barrels, confirming an earlier report by the API of a 4.1 million barrel increase. Analysts surveryed by Platts were expecting a build of only 1.1 million. Also weighing on prices was the CFTC hearings which have caused some traders to cover positions along with early end of the month profit taking. Prices were down hard at this point, challenging the area of the 7-Month Uptrend Line for August at $63.20.
As we closed in on the end of the week and month, technical buying started coming in around the 7-Month Uptrend Line while a drop in U.S. jobless claims spurred a buying frenzy that took back most of the prior losses for the week. Crude oil continued to rise into Friday topping $69.00 as GDP showed a smaller-than-expected contraction in the economy. Additional strength came from a weaker dollar and on a bullish equities finish to July. The market continues to brush off the high supply and weak demand equation as investors continue to celebrate any signs of a hopeful economic recovery and should continue in the near term.
TECHNICAL OUTLOOK
As we embark on a new month, we’ll begin with a brief re-cap of the longer term trend. The market is still in a bull trend for all of 2009 with July’s lows holding the 6-month uptrend line at $59.00 which was followed by a solid upside reversal. Last week’s correction held the newly drawn 7-Month Uptrend Line crossing at $63.20 for August, setting a bullish tone to start things off. Additional strength this week is provided by the broken shorter 3-month downtrend line crossing at $70.35.
The weekly chart shows a 4-Week Uptrend Channel beginning early July, setting a buy dips bias against initial weekly Support at $70.00 to 68.00 with an objective at the top of the 4-Week Uptrend Channel at $72.60 to the 2009 high at $73.38. Maintaining settlements above $70.00 this week is bullish while a penetration through $73.38 will reinforce the Bull cause, bringing $75.00 to 76.00 into play this week. The $76.00 area marks at 38% Fibonacci retracement of the 2008 sell off from record highs making it a likely profit zone for the Bulls. If the Bulls are resilient enough to take out $76.00, then $80.00 crude oil is a definite possibility for this month.
On the downside this week, we’re showing the initial turnover below $68.00 triggering a potential corrective pullback to challenge the bottom of the 4-Week Uptrend Channel at $65.65 to 64.95 secondary weekly support zone. Any shorts in the market should cover within the $65.65 to 64.95 range with buying opportunities the first time down and a rebound into the $68.00 to 70.00 range. If the Bulls fail to successfuly defend the 4-Week Uptrend, a subsequent drive to the 7-Month Uptrend Line and last week’s lows at $63.20 to 62.70 will unfold. Producing settlements below $63.20 to 62.70 will mark a major turnover on the long term charts with the Bears taking reigns and targeting $60.00 to 58.00 with a long term outlook projected to the key 2009 breakout at $54.60.
