Crude Oil Bulls Gain Some Technical Momentum

 | Sep 15, 2011 | 2:30 PM EDT  | Comments
  • Comment
  • Print Print
  • Print

West Texas intermediate (WTI) crude oil futures for October delivery on the New York Mercantile Exchange this week poked to a fresh five-week high of $90.52 a barrel. Crude prices are presently in a five-week, up-trend on the daily bar chart and have rallied by nearly $15.00 a barrel from the August 9 spike low of $76.15.

The crude oil bulls have gained a bit of fresh, upside technical strength this week. The climb in prices from the August low has come amid low volatility and has been "under the radar" of many market watchers. The uneventful price advance in crude suggests the same can continue in the coming weeks. However, the crude oil market bulls will have to produce multiple daily closes above $90.00 per barrel in nearby futures to gain better, upside technical momentum to then suggest prices moving into the mid-$90s a barrel, or even challenging major psychological resistance at the $100.00 level.

There is presently strong trend-line support for nearby crude oil futures at the $85.00 area. A drop in prices below that level would dent bullish enthusiasm and then suggest that crude prices will trade in a range between $80.00 and $90.00 in the near term. Should crude oil futures prices fall below major technical support at the August low of $75.71 (basis nearby futures), which is not likely, then fresh, serious technical damage would be inflicted to suggest prices would trade in a range between $65.00 and $75.00.

Oil Market Fundamentals not so Bullish

While the important technical chart posture in crude oil is presently tilted in favor of the bullish camp, the same cannot be said for the supply and demand fundamentals in crude.

In the past few weeks, economic data has come in weak for both the U.S. and Europe. Sluggish worldwide economic growth also means anemic demand for liquid energy. As long as the economic data coming out of the world's major industrial countries remains tepid, a bearish fundamental weight will remain on the crude oil market.

The recent European Union sovereign debt turmoil and a stronger U.S. dollar index have also limited speculative buying interest in WTI crude oil futures. If the U.S. dollar index continues to trend higher, the bullish, speculative side of the crude oil market will continue to be restrained.

Importantly, the crude oil market will likely continue to closely track the U.S. stock index prices. If the stock indices can continue to trend sideways to higher from their August lows, as has been the case for the past few weeks and should likely to continue, then WTI crude oil futures prices will likely do the same. If the U.S. stock indices come under strong selling pressure in the coming weeks and drop below their August lows, which is less likely but still possible, then crude oil prices would likely trend lower.

 

Columnist Conversations

Index Chart of the Day: SPX and RUT Divergence SPX vs. RUT (YTD) View Chart »&nbs...
Is this the biotech revolution or the biotech bust? View Small Cap Biotechs Like Never Before: Transparency is...
The S&P 500 index finished the week unchanged, but the VIX was up 5%, the divergence sending a bit of a mi...
Weyerhaeuser has been struggling since testing the 2013 highs last month. The stock extended a powerful...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.