The market held a 6-month uptrend (6 M ^ TL) last week at the new benchmark support range from $60.00 to 58.00 and broke a minor 3-week downtrend that prompted a reversal of the prior plunge from $73.38 to 58.32. The bullish factors that fueled upward momentum began with a larger-than-expected drop in available crude inventories triggered by increased demand from refiners as reported by the EIA. Although the report showed gasoline demand remained down, a weaker dollar and strong equities helped to sustain rallies. An upbeat jobless claims report also helped to offset worries over sluggish gasoline demand while China’s economy increased faster-than-expected in the second quarter. A positive housing report, along with short covering ahead of Tuesday’s August expiration provided a final boost that produced a 6% weekly advance with a closing price at $63.56. Prices however, are still down 9% for the month.
The market is once again ignoring the fundamentals of weak demand and surplus inventories and looking to positive ecomonic data for a “hopeful” recovery, making the case for a potentially short lived rally. Nevertheless, we’ll need to monitor the technicals for directional guidance going forward.
SEPT CRUDE TECHNICAL OUTLOOK
With the August contract set to go off the board on Tuesday, we’ll turn our focus to the September contract this week. Last week’s reversal has prompted additional buying to start off this week; however, the market will most likely run into a wall at this week’s initial Resistance range at $66.00 to 67.25, the breakdown range that triggered the final plunge last week to $58.32. The Bulls will need to power through $66.00 to 67.25 to sustain rallies this week bringing the $70.00 mark back in sight with a target range at second weekly Resistance from $68.50 to 70.00. Producing settlements above $70.00 this week will reinforce strength in the weeks ahead.
Any failures to take out and hold above $66.00 to 67.25 initial weekly Resistance signals for longs to book profits while sellers load up for a corrective slide back to this week’s key Support placed at $63.00 to 62.00. A Bear push below $62.00 will confirm a failure at $66.00 to 67.25 thereby sending crude prices back into the benchmark Support zone at $60.00 to 58.00 to retest the 6 M ^ TL. If $58.00 is violated we’ll be on our way to the major 2009 upside breakout at $55.00 to 54.65, where all shorts should be taking profits the first time this range is reached.
