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Oil, a short term bottom ?

Tue, Jul 22 2008, 06:16 GMT
by David Solin

FXA

Crude oil futures are trying to bottom after the $19/bbl plunge since the July 11th high at $147.27, currently chopping from key support at $127.50/128.50 (Friday’s low, bullish trendline since Feb, and a 38% retracement from the March low at $98.65, see daily chart below). With the market near term oversold after the recent sharp declines, this area should hold at least temporarily and if more aggressive, would buy here (currently at $130.35). Note however, that the confidence level that a more significant bottom is in place is not currently that high (at least so far, and versus just a short-lived countertrend bounce), while the daily macd is in sell mode (see bottom of daily chart), adding to the risk that any near term bounce may be short-lived. So initially stop on a close below the bullish trendline since March, but will want to raise it more aggressively if the market does indeed bounce from here to compensate for the risk of only a short-lived, countertrend upmove. Nearby resistance is seen at resistance/initial target is seen at $137.50 (both a 50% retracement from the $147.27 high and the previously broken bullish trendline since March).

Longer term, no change as the market appears to be within the final upleg in the whole rally since the Jan 2007 low at $49.90 (wave 5, see weekly chart/2nd chart below).
Though this suggests at least 6-9 months of consolidating lower, there are still no firm signs that the final upleg (which began at the Jan 2008 low at $98.45) is “complete” (5 waves down on shorter term chart). Also, with the market still in “bubble mode”, it can continue to extend on the upside and stay volatile. Clearly in the longer term, there is significant risk on both sides of the trade at this point, and currently not seen as the time to be entering a longer term position on either side of the market.

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Published on  Wed, Jul 23 2008, 11:06 GMT