Crude oil prices turned hard late last week off a technical double top at the yearly highs after a 2-week period of expected congestion within the $70.00 to 73.38 range. During the 2 weeks, the market came close to $73.00 but never quite made it. A series of small body candles followed providing an early indication of an exhausted market. On Friday, the Bears stepped it up and took out key Support we had placed at $70.35 to 69.75, resulting in a solid flush to close out the week well below the $70.00 mark at 67.51, setting a technically bearish tone going forward.
On the economic side of the equation, the market has mainly been supported by a weaker dollar and strong equities along with the hope for an end to the recession. A good portion of the $58.32 to 72.84 rally was driven by the perception that the U.S. economy was showing signs of improvement and therefore would spur demand in the future. However, the fundamentals remain bearish as crude inventories grew 2.5 million barrels and remain at 352.0 million barrels according to last week’s DOE report. Supplies at Cushing also rose for a seventh straight week, adding 300,000 barrels to 33.6 million barrels. The catalyst was Friday’s consumer sentiment index dropping from 66.0 in July to 63.2 in August while analysts were predicting a rise to 69.0, proving that the consumer is not on board with the ‘hopeful’ recovery. Week on week, crude oil lost $3.42, or 4.8%.
TECHNICAL OUTLOOK
From the technical perspective, the market will begin this week violating the 6-week uptrend line (6 W ↗ TL) which is now at $69.30 and also marks the start of a 3-week downtrend channel (3 W ↘ TL CHNL), setting a bearish tone to commence trading. Key Resistance areas this week are placed at $67.50 to $68.20 and again at $69.00 to 69.75 with a sell rallies bias within that range. Downside objectives are seen initially at $65.00 to 64.35 (18 W ↗ TL) and overall at major trend line Support at $63.25 to 62.25 consisting of the 7 and 4 monthly channels and the 27 week channel. Producing settlements below $63.25 to 62.25 is extremely bearish on oil, aiming at $60.00 to 58.00 and potentially to the 2009 major upside breakout at $54.66 in the coming weeks.
On the upside this week, trade holding the 18 W ↗ TL at the $64.35 area or the key $63.25 to 62.25 support region, will offer aggressive traders buying opportunities for sharp rebounds. However, as this market has clearly turned, any rebounds will likely be short lived. Otherwise, the key upside shift this week will be above the $69.75 breakdown and on multiple settlements above the $70.00 mark. In that scenario, we’ll expect a bullish run to challenge the 3 W ↘ TL and recent highs at $71.60 to 72.84 with a chance at reaching the 2009 high at $73.38.
