Longer term view in crude oil is unchanged as the market is seen within in extended period of wide ranging with an upward bias, with more of the same (and even further new highs) over the next month or so (and possibly longer). However, the market is overbought after the sharp gains since the Jan 2009 low at $33.60, and is approaching longer term resistance at the ceiling of the bullish channel from June (currently at $87.25/75) then $89.75/25 (50% retracement from the July 2008 high at $147.27). This in turn suggests that the magnitude of further, big picture upside is likely to be somewhat limited, before completing a potentially major top (see “ideal” scenario in red on weekly chart below). So, despite the scope for further gains, it’s not seen as a good risk/reward for the longer term in chasing the market higher from here. For now would have a neutral, bigger picture bias, but with the expectation of switching to the bearish side down the road (and at marginally higher levels).
Nearer term, the market is chopping after the recent, slight break of the Oct high at $82.00. Though further gains are favored in the bigger picture, the market is overbought after the sharp gains since the Dec 14th low at $68.59, while still within a larger period of upward ranging (see longer term above). This in turn suggests that risk is rising for at least a week or 2 of correcting lower and minimum $5-7 retracement first. So for now for the nearer term, would wait for this nearby period of consolidating lower to “play out”, but with the expectation of buying at lower levels for new highs. Also, took profits on the Oct 2nd rebuy at $68.40 on the early Nov close below the bullish trendline from Sept (then at $78.50, closed at $77.45 for a $9.05 profit).
A final note, generally I view it as important to understand the “type” of market you are in to help determine a good risk/reward opportunity. In this instance, the market is in a period of upward ranging since June (large bullish channel). Though further new highs are favored, the market can retrace as far as the base of the pattern first (currently at $70), before pushing to those new highs (within the larger channel). That’s too much risk to be “chasing” the market for the potentially limited, big picture gains. So in general suggest trading with an upward bias (a phrase I use quite often) in this type of environment (waiting for pullbacks to buy and then trailing the market higher with stops). This approach does mean at times missing moves (can continue directly higher from here), but as I’ve mentioned numerous times in the past, success in the market is obtained by consistently getting into good risk/reward trades, and at times means missing moves.
