Friday Nov 4, 2011
Another month has past, let's update crude oil. We noted in our weekly newspaper, see later in this post, that crude oil is up against its 200 day moving average. Merril is predicting 105 for crude. But even that would keep it under its most recent monthly sell signal.
Monthly Crude Oil
Our expected top in crude oil occurred this summer just as it did in 2008. The tip was Patterson PTEN topping at 34, just as it did in 2008. PTEN the lost half its value to 16 and has recovered to 20. NOte that crude oil is still under a Monthly PAR SAR sell signal. Such signals are rare. The last buy was in mid 2009. Hence we should respect the message. Crude oil has re traced roughly to its 61.8% level which was 102, it hit I think 115. Now what?
As Lehman and Bear melted in 2008 the US Dollar took off. Hedge funds had been long crude oil and dumped all of it to meet margin calls and withdrawal requests. That tanked oil to $35.
Now the Dollar is cheaper than it was anytime during 2008. And we have a Euro crisis on our hands. (this has been the case all year so that news is already baked into the markets) So the question, is there a chance the Euro tanks, the Dollar soars, and funds which have speculated in crude oil, dump their trades with a resulting fall in the price of oil? I contend that oil is the most emotional of all commodities. This leads to this kind of speculation and wild swings in price.
The answer to all of this is that we cannot know. We can only follow the charts.
Weekly Crude Oil
The weekly chart shows a successful re test of the 200 week moving average. This suggests another run at the down trend line now at 110. That makes sense as VIX and TLT are still high That level of fear actually is bullish, The stock market won't dramatically start a bear market with VIX over 30. So the better bet is that crude oil powers higher for now. With everyone worried about Greece, the better bet there is that, nothing happens. OH Greece may or may not stick with the Euro but...one day Europe will rescue Greece (read German and French banks holding Greek bonds) the next Greece will vote on the idea, the next day no never mind we won't vote, ah well, I did see an advertisement for a vacation in Greece perhaps that's the best bargain going.
Comments