End of year profit taking last week sent commodities retreating from 2009 highs as Gold fell 50 dollars and Crude oil prices closed at the lowest level in 7-weeks at $75.47, down 0.8% on the week, since peaking at $82.00. Friday we saw the dollar rebound, which contributed to oil’s decline, as the US Department of Labor reported the rate of unemployment fell from 10.2% in October to 10.0% in November and non-farm payrolls were nearly unchanged, declining just 11,000 last month.
Crude fundamentals last week were overwhelmingly bearish as the weekly Energy Information Administration report showed crude stockpiles rose 2.1 million barrels and Gasoline inventories rose 4 million barrels while distillates fell 1.2 million. Total petroleum demand was down 2.6% to 18.32 million barrels per day putting demand 6.5% below year ago levels.
Market fundamentals this week continue to favor the downside in Crude and products as supplies continue to outpace demand. In addition, we expect a reversal in the dollar and equities on end of year profit taking to generate further pressure on oil prices.
Technical Outlook
The market has been trending lower for the past 8-weeks since topping at $82.00 with last week’s failure to reach $80.00 a precursor to the end-of-the-week sell off. The current chart pattern is very bearish as we closed well below the 11-month uptrend line at $76.70 and enter an 8-week dowtrend and a shorter term 3-week downtrend.
Take a sell rallies approach this week against the $76.00 to 78.00 range while targeting the $74.00 to 73.00 range initially, then the November post Thanksgiving spike low at $72.39 to the 21-week uptrend line at 72.00. We’ll want to exit most shorts at this juncture and re-sell any rallies against $73.00 to 74.00. If $72.00 is taken out, we can anticipate an extension to the 70.00 mark this week.
On the upside, with an 11-week uptrend line crossing at $74.00, trade holding there offers good short term buying opportunities. However, with recent technical data favoring the Bears, scale out of longs from $75.00 up to 78.00. The initial upside breakout that signals strength this week is above the 3-week downtrend line at $78.00. Still, we’ll need to crack the 8-week downtrend line at $79.05 to generate a solid Bull thrust back into the $80.00 to 82.00 range.
