I'm getting bearish on oil. I know, it's heresy, it can't be, etc...But hear me out. The failure at 50 dma was pretty brutal last week and we hit support with a bearish RSI divergence. Furthermore, the technicals are deteriorating but everyone is still screaming buy oil and oil stocks. Exactly the opposite of equities where improving technicals is met with pessimism. You know how I feel about that. Notwithstanding the macro conditions related to a slowing economy, one must start to believe that a lot of bad news has been thrown at oil and must be reflected in the price. The caveat is another Katrina or war with Iran, but this is not the kind of odds you take to Vegas.
Futures trading has switched to the October contract (CL/QM 06V). Coincidence or not, it is the only contract to hit 80 (exactly) as the year high. We did a perfect bounce last week off 71.48, 50% 2006. As you recall, I had a September contract chart up back then and called for a drop to around 69.50, which is pretty much where we found a near term bottom. If bulls fail to regain the 50 dma, now at 74.70 (October contract), the party lights go out and it could be for the remainder of the year. Let's wait for that failure first before committing anything on the short side, but longs should be aware of the dangers lying ahead. It is not a slam dunk that oil will keep rising without a deep correction at some point. The first order of business for oil bulls will be to regain 73.50, 38.2% 2006 and above all hold on to 71.50. The press is still quoting September, that's not what traders are using. There is about a one dollar premium on the October contract compared to September. Of course, near-term bearishness is negated on a move with volume above 74.70. Shorts be patient, longs be careful.
click on chart for full size
Futures trading has switched to the October contract (CL/QM 06V). Coincidence or not, it is the only contract to hit 80 (exactly) as the year high. We did a perfect bounce last week off 71.48, 50% 2006. As you recall, I had a September contract chart up back then and called for a drop to around 69.50, which is pretty much where we found a near term bottom. If bulls fail to regain the 50 dma, now at 74.70 (October contract), the party lights go out and it could be for the remainder of the year. Let's wait for that failure first before committing anything on the short side, but longs should be aware of the dangers lying ahead. It is not a slam dunk that oil will keep rising without a deep correction at some point. The first order of business for oil bulls will be to regain 73.50, 38.2% 2006 and above all hold on to 71.50. The press is still quoting September, that's not what traders are using. There is about a one dollar premium on the October contract compared to September. Of course, near-term bearishness is negated on a move with volume above 74.70. Shorts be patient, longs be careful.
click on chart for full size
This entry was posted
on Monday, August 21, 2006 at 5:22 PM.
