Oil Still Bullish But Vulnerable

Let’s take a look at the price of light crude which has remained in a fairly tight range for the past several months.  For those that aren’t chartists, the chart below might look like a mess of mumbo jumbo, but stick with me.  It’s not as complex as my scribbles would have you believe. 

The first thing you might notice is that the price of crude has more than doubled off the 2009 lows, hitting a 2009 high just above $80/barrel a couple weeks ago.  Granted, it’s well off the 2007 highs which reached nearly $150/barrel but at $75, it’s still a burden to the overall economy and in my opinion something the market hasn’t yet paid attention to, but could especially if the price of crude approaches $100/barrel again.  It could happen.

Following the first price breakout of crude oil in early May above $55/barrel, the price soared quickly to $75 where we remain today.  In mid June, you’ll see that the 50 day moving average (blue line) crossed above the 200 day moving average (red line) which is a bullish indication.  The 50 day moving average has been in an up trend since March and the 200 day moving average began to trend up in August.  Also bullish indications. 

The bottom line is that the price of crude oil remains in a strong up trend, having staged a breakout above $75 in mid October with key support at that level.  Given that the overall market looks a bit shaky up here, I’m skeptical that it will hold the $75 for long though.  After doubling in less than a year, my feeling is that more consolidation needs to take place and I see a range of $65 – $80 developing for quite awhile.  On Friday, it closed just above the key $75 level, but if it eventually takes that level out, look for a test of the next major level of support around $65.  That would be a very normal digestion of gains with a test of the 200 day moving average.  A break below the $65 level would indicate a bearish picture for crude.  On the other hand, if this miraculous market rally continues with little pause, we can’t count out a return to $100 oil.  I think we need to test $65 before a return to that level. 

I’ll try to take a look at the price of crude about once a month here, so be sure and check back in!