Can Oil Bears Take The Lead?

Fundamentals

Crude Oil futures are higher this morning, reversing some of last week’s sharp declines. Japan’s economy grew at an annual pace of 4.8%, exceeding even the most optimistic of expectations. The US Dollar is also continuing its slide this morning, giving Oil bulls a bit of good news to latch on to. The upbeat news from Japan indicates that the economic recovery is stretching the entire globe. Yet, despite this good news, traders have to question how much of this recovery has been the product of government intervention. Like the US, much of the world is seeing what can be termed a jobless recovery, where the gains in GDP can be seen as superficial. This suggests that conditions could deteriorate quickly if government aid is pulled too quickly. Traders also have to question when consumers will begin to open their pocketbooks and begin spending at a rate at which we are accustomed to seeing. This may happen later rather than sooner. This presents a quagmire for Crude Oil traders. The large US inventory levels reported last week may not be brought down unless the employment picture improves. On the flipside, continued government intervention is creating an unsustainable level of liquidity, which will likely limit the downside for Crude Oil.

Trading Ideas

Crude Oil fundamentals seem to be favoring the bear camp, as are the technicals. Crude Oil traders, however, are a very fickle bunch, so this can change at any time. Some traders may wish to stay on the sidelines for the moment and wait for further technical confirmation from several solid closes below the 75.00 level before testing the short side of the market. If the market is not able to cross this level, the market may trade sideways, thus making a more neutral strategy more appealing.

Technicals

The December Crude Oil chart shows price breaking down below near-term support near 76.50. However, prices did manage to snap back fairly quickly this morning. Could this be yet another false breakout? The price action this week will likely provide an answer for this question. The December contract is now flirting with an area of very heavy congestion that will either provide support or offer confirmation of a significant downside breakout.

Subscribe by RSS Subscribe by Email