The oil market continued to trade wildly at the NYMEX last week with a mix of technicals and fundamentals fueling the action. Off the bat, crude dipped to at $68.02/barrel on dollar strength but held as the Bulls stepped in to defend the 8-month uptrend line. The bounce off of technical support attracted buyers into mid-week while a jump in U.S. retail sales and a draw of 4.7 million barrels from inventories proved to be a catalyst for a solid blast to $73.16. As rallies faded against the $73.00 to 73.57 key Resistance barrier, an end-of-the-week rise in the dollar prompted mild profit taking bringing crude back to settle at $72.04 while maintaining a gain of nearly 4% on the week.
Technical Outlook
With expiration of the October contract on Tuesday, we’ll focus our attention on the more active November contract which takes the spot position on Wednesday.
The market is still in a major uptrend from the 2008-2009 lows, though the weekly action of late has been mostly indecisive as it whips back and forth between $68 and $73. In short, the market has been consolidating the major uptrend and creating a potential downside reversal pattern as it appears the Bulls have become exhausted. And with rallies stalling against the $73.00 to 73.57 Resistance barrier last week, a daily ‘head and shoulders’ pattern may come to fruition this week. The 8-month uptrend line at $68.20-68.00 which has been holding the market up this month, along with the major weekly uptrend line crossing at 67.54 this week makes up key support this week. Trade below $67.54 is the anticipated key breaking point that would confirm a ‘head and shoulders’ pattern sending crude oil prices tumbling to $65.00-63.00 initially, but has the potential for a more extreme move into the $60.00-58.00 zone in the coming weeks.
On the converse, if the Bulls once again defend the 8-month and major weekly uptrends at $68.20-67.54, then another upside boost is projected. Initially, expect a rebound to the $70.00 area. If trade subsequent to that generates multiple settlements above $70.00, a buying wave back to key Resistance at $72.55-73.57 is imminent. To sustain strength, the Bulls will need to take out $73.57 which should bring prices to the current 2009 highs at $74.96 to 75.27 while paving the way for the next Bull leg to the 38% Fibonacci Retracement of the 2008 bear collapse at $76.00-76.30. Any trade above $76.30 will be aiming for $78.35 and quite possibly as high as $80.00 in the coming weeks.
