Back in mid-April, crude oil (CL #F – continuos contract) broke through the Sept 05, post-Katrina highs setting up a potential test to 7750-8500/bbl. On 04.24.06, a new contract-high of 7535 was set with a retest on 05.03.06 failing at 7499 before reversing lower on strong API inventory numbers. For the day, the contract closed down over 200/bbl. Today, its been working its way lower since the open, setting a 7010 low so far. What’s next?
The long-term trend to the upside has been very strong since about Apr 2004 when it broke above 3500/bbl with the inception of this long-term uptrend rooted in late-1999 to early-2000 lows. The short-term trend has been in effect since the mid-Feb 2006 lows. Is the trend finally coming to an end? It is too early to tell as yet, since turning this upside momentum is about as easy as turning a super-tanker on a dime. However, for the very short-term watch for a close of sub-6975 as a warning sign that the fat lady is warming up her vocal chords. A sub-6750 daily close turns the short-term momentum down. Do not be over-aggressive in looking for the ultimate top though. The long-term trend has seen several 1200-1500/bbl pullbacks before resuming the move higher. Therefore, a daily close below at least 6150-6450 is required to establish a long-term top with a sub-6000 close confirming.
