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Oil, near term critical juncture....

Mon, Sep 1 2008, 06:14 GMT
by David Solin

FXA

Crude is consolidating since the Aug 15th low and is worth keep a close eye on currently…not only for oil’s potential action, but for the potential action it could trigger for the $ (especially on a near term basis). Generally still view crude as bottoming since the Aug 15th low at $111.34, with at least another few weeks of upward ranging toward $125.00 (38% retracement from the July high at $147.27), $129.00 and potentially above. Currently, the market is chopping just below key resistance at the bearish trendline since late July (currently at $120.00, see daily chart), and with a break above there potentially trigger a further upside acceleration. Note too, the thin markets ahead of the long weekend in the US and the approach of hurricane Gustav in the oil/gas producing Gulf area early next week, and could in turn lead to a rapid jump higher. No doubt such a move would weigh on the $ and likely confirm that the near term top is in place (for at least the next few weeks). However, there scope that crude does not break higher from here, but instead bases further and would likely lead to more topping (and potentially even slight new highs) in the $ versus at least some currencies. Still long in crude from the Aug 20th buy at $113.50 and given the risk of more basing, would use a close below the bullish trendline since Feb (currently at $112.50) as a sign to flatten.

Longer term, still favor the view that the market completed the 5 wave rally from at least the Jan 2007 low at $49.90 at the July high at $147.27 (see numbering on weekly chart/2nd chart below). This suggests at least another few months of wide ranging ahead, and with the near term bounce (see above, if it does indeed occur) just a correction and not the start of a major new upleg (see “ideal” scenario in red on weekly chart/2nd chart below). Note too that the weekly macd is in sell mode (see bottom of weekly chart), also suggesting that any near term bounce may be part of a larger correction, and not the start of a major new upleg to significant new highs.

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Published on  Mon, Sep 1 2008, 06:19 GMT