Crude oil prices rallied for the second straight week on the New York Mercantile Exchange, shrugging off weak fundamentals, as the Bulls came storming back from a 2-week plunge earlier this month. The main driving force behind the recent crude jump has been the boost in equities coupled with a weaker dollar which prompted a 7.1% weekly gain closing at $68.05, the highest settlement for a front month contract since July 1.
The week began with Federal Reserve Chairman Ben Bernanke raising hopes for an economic recovery during his testimony to Congress stating the economy is showing “tentative signs of stabilization”. The market suffered a minor setback mid-week as the weekly storage report showed total petroleum inventories rose and remained on 19-year highs. Rallies resumed for the remainder of the week as oil prices followed U.S. stocks higher on a strong housing report, once again ingnoring the fundamental situation of weak demand and surplus inventories.
In the short term, oil investors are likely to remain focused on hopeful economic reports with the anticipation of increasing demand in the future while closely tracking stocks and the dollar. Weighing on the downside this week will be the weekly inventory stats along with potential end-of-the-month position squaring.
Technical Outlook
The market fell off the cliff in early July but maintained the 6-month uptrend line (6 M ^ TL) at the $59.00 area which prompted the 2-week $10.00 surge, illustrating the 2009 bull trend remains intact as we enter the last week of the month. As we begin a new week, the market is beginning a steep 3-week uptrend (3 W ^ TL) which crosses at $68.00 and makes up a portion of initial weekly support at $68.00 to 67.00. The steep trend raises concerns; however, any dips that hold $68.00 to 67.00 will present good buying opportunities this week while a press above the $69.00 garners strength for a continuation run to the next key weekly resistance barrier at $70.30 to 71.30. Trade above $71.30 points to the 2009 resistance highs at $72.77 to 73.38. However, with the chart patterns mainly showing congestion from $70.30 up to 73.38, longs should begin to take caution and even scale out, especially if the funds decide to book gains for the month. The top of the current 3-week uptrend channel crosses at $73.75, making that the next threshold to violate for an extension to $75.00.
On the downside this week, as mentioned above, there is congestion at $70.30 to 73.38 with potential end of the month profit taking offering the Bears a chance for shorting. That being said, watch for signs of struggling momentum against the weekly resistance ranges and a subsequent pullback to the 3 W ^ TL within the $68.00 to 67.00 support range. The initial turnover this week will be below $67.00, which violates the 3 W ^ TL and sets a downside objective at the next weekly support range from $65.65 to 64.00, last week’s breakout. Come August, the monthly up trend will adjust to a 7 M ^ TL and cross at $63.20. Should a negative scenario play out this week, the Bears will use $63.20 as a key objective. Producing a close below $63.20 for the month will set a bearish tone heading into August with the first target range at $60.00 to 58.00.
