Crude Oil — $132 just ahead

 

Factor Special Technical Situation Report

Petroleum market – Further advances ahead

On December 22 I issued a special post titled, “Gas prices ready to ignite.” At the time RBOB was as $2.64. The close Friday was at $3.04.

The charts continue to indicate higher prices across the petroleum category. The following classical charting observations are worthy of note:

The trend on the monthly Crude Oil chart is clearly higher. The market is poised to challenge the April 2010 high, and beyond that the 2008 high. The weekly chart displays a possible continuation H&S pattern. Friday’s high was the highest daily close since early May. A decisive close above the resistance line at 103.50 to 104.50 would complete this continuation pattern and set a target of 133.00.

 

 

 

This line of resistance can be best seen on the daily chart (below).

 

The Brent Crude Oil chart is more constructive than is the WTI market in that the April to October reaction was more shallow and tighter, thus more consistent with a continuation chart pattern than a top.

 

The most constructive chart within the petro complex is that of Heating Oil. The weekly graph shows the period since April as a rounding or saucering pattern. This pattern, if completed, would have a target of 3.70. The daily chart could also be interpreted as a rectangle.

 

 

Note the tight area of congestion during the past three weeks on the daily Heating Oil graph. Many of my most profitable trades over the years have come from taking extraordinarily leveraged positions based on large pattern breakouts launched from small patterns. An hourly chart of this tight congestion, as shown below, takes for the form of a continuation H&S pattern (a pattern accepted by Edwards and Magee as well as Richard Schabacker, but rejected my many modern era Elliott Wave technicians). 

The daily RBOB Gasoline chart below shows the falling wedge that initially drew my attention in December. The target of this pattern is 3.40 to 3.50.

 

There is a MAJOR problem with the bull scenario in WTI Crude Oil — the open interest story. There is currently a near record open interest of 1.29 million contracts.

The composition of this open interest represents a near all-time record short position by commercials and long position by the large speculator (including the funds).

Typically it does not pay to bet against the commercial interest in the futures market, especially when the commercial interest is so heavily slanted in one direction — but there are rare exceptions. So, while further gains in price are possible — even to the extent of the targets identified in this document — one must question where the additional buying will come from given the extended committment of the speculator at present. A close below last week’s low in Crude Oil could lead to cascading stops.

Markets: $RB_F, $HO_F, $CL_F, $U.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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