After six weeks of sideways congestion in which the Bears attempted to take the reigns, the Bulls came storming back last week with a technical blast through the 5466-5500 threshold and posted new 2009 highs and a 6-month high at 5875. The market settled for the week just off of its highs at 5863, up more than 10% from the previous week.
Despite the rise in crude inventories last week, the market seems more focused on optimism that the worst of the recession is behind us. Among the news drivers were a rise of 3.2% in pending U.S. home sales for March and a rise in China’s PMI index for a second straight month suggesting China’s demand for oil will increase. The market received a final boost from Friday’s better-than-expected jobs report showing non-farm payrolls falling 539,000 last month versus expectations of 600,000. The strength in equities last week also contributed to the crude rally as a rising stock market suggests consumer confidence is up and demand for oil will increase.
The technical picture shows the most recent monthly, weekly and daily trends are up with last week’s breakout above the 5466-5500 resistance barrier expected to fuel continued rallies this week. With the market now in a new 4-week uptrend (4 W ^ TL), we can look for any corrective trade to offer buying opportunities within this week’s initial weekly support range from 5635-5466. Our initial upside objective this week is at 6000, however, since this is merely a psychological level, the key target is at the major 11-month downtrend line (11 M v TL) from record highs which crosses at 6100-6130 up to 6200. Producing settlements above 6200 will sustain rallies setting the next major target at the 200 DMA crossing within the 6400-6500 range and if the week closes strong there, 7000 is expected to be reached in the coming weeks.
With the fundamentals still bearish as far as inventories go and the market mainly up on optimism, there is a chance this rally will begin to fade and/or reverse. That being said, longs should book profits within the 6100-6200 range. If momentum does fade there, shorting opportunities will arise for a return to the 5630-5466 weekly Support range. Any trading or closes below 5466 indicates short term bearish control with downside profit points at 5350-5250, 5145, and potentially to the key 5000 level.