Recap
Crude oil maintained its weekly bull trend that began in mid-February but remains ‘news sensitive’ as evidenced by last week’s volatile swings. The market suffered its biggest 1-day drop in four weeks off the open as a strong dollar limited the appeal for oil and losses in equities reiterated the concern of the global recession. The market remained under pressure through mid-week as the DOE reported a climb in crude inventories to a 15 year high of 359.4 million bbl.
The bleak picture quickly changed on Thursday as momentum reversed to the upside, initially on a technical regain of the weekly uptrend line, then following equities in an explosive rally as the G-20 agreed on measures to fight the global recession thereby creating speculation of an increase in worldwide energy demand. Friday’s session mainly consolidated, but finished the week strong at 5250 compared to its lowest point posted mid-week at 4726.
Technical Outlook
The technical trend for crude oil remains bullish in the near term as it broke a 6-month downtrend (6 M v TL @ 5060) and extends the weekly uptrend into an eigth straight week. Volume had picked up as the market rebounded from sell offs that maintained last week’s 7 W ^ TL at 4825 and left the weekly ‘Doji’ candle reversal signal unconfirmed, adding conviction to a continuing upward bias this week. That being said, we’re going to take a ‘buy dips’ approach this week against initial weekly support at 5225-5100. Maintaining trade above this range will set the stage for rallies back to the 3-month high at 5466 and up to a double top at 5600. Producing multiple closes above 5465, or a solid breakout above 5600 will pave the way for further advances with an overall objective for the week at 5900-6000. With the top of the 8-week uptrend channel at 5900 (8 W ^ TL CHNL) and psychological resistance at 6000, there is descent opportunity to take profits on longs or short sell for a corrective pullback.
Trade failing to hold initial weekly support at 5225-5100 will generate some selling pressure that probes into the 5045-4950 range, but with the bottom of the 8 W ^ TL CHNL and a daily up gap at 4950 we’ll still be looking for buying opportunities. It’s a break below 4950 that’s expected to shift momentum to the Bear camp with initial profit objectives at last week’s low and support at 4726-4630, then the 4530-4430 range which would represent a 50% retracement of the current 8-week uptrend. Producing multiple settlements below 4430 is very bearish on the market and will generate continuation sell offs likely to press into the 4200-4000 range.
