Crude Oil Two-fer?

Yesterday, 06.04.08, I stated that the downside objective that I specified on 05.21.08 was being tested.  Intraday the July contract hit 12182 with an overnight low of 12160. Those tests were the first shots across the bow for the crude oil shorts.  Today’s midday rebound back above the key (psychological as well as chart wise) 125 level was the direct hit below the water line.  By the day session close the Jul contract ran back up to 12800 before settling up nearly 550 pts.

So the 05.21.08 high call before a specified pullback and 06.04.08 low call before the expected mid-to-upper 120s retest complete the “two-fer”.  Barring some extreme event (e.g., Gulf hurricane, geopolitical event, etc), watch for crude to range out in the near term between 115-120 and 135-140.  A close above 134 or below 122, basis the July contract will negate this outlook.  Note that the Aug contract which traders begin rolling into next week, trades at roughly a 40-50 pts premium to July.

Crude Oil Update

On Twitter the afternoon of 05.21.08, I stated the maximum upside for crude oil before a pullback was 13450.  Crude peaked out that evening at 13508 and has, as of this morning off the weekly API statistics, begun to test the stated objective of 11850-12250.  The maximum downside for this move before retesting the mid-to-upper 120s is roughly 110-115; a move below that and the mentality of the market will have changed.

So who is going to take credit for this recent pullback?  More-than-likely, you’re elected officials in Washington (where perception of action is actually more important than substantive action).

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Showtime

This past weekend I mentioned that some cycles I follow were pointing to a critical time this week for indices, bonds and crude oil. Monday saw the NQ and SP top out at 1916 and the 1390 area with crude oil setting another record, basis the Jun 08 contract, of 11895 on Tuesday (as this is written with less than 45 minutes remaining in the NYMEX day session.)

The sellers stepped in overnight and early Tuesday in the indices, pushing both the SP and NQ back inside their extended ranges mentioned last week with the NQ almost filling the real gap at 1870 from last Friday's session. The close today is critical. Below SP 1389 and NQ 1894 will be a weak sign with confirmation coming from a close at sub-NQ 1867. If this plays out, look for a least a short-term downside target to NQ 1824-1840.

For crude oil, a close below at least 11495 is necessary to slow the upward momentum with a close belwo 11370 signaling a short-term top.

Cycles, Cycles and more cycles…

There was an interesting article in Barron’s Getting Technical this past week. Though cycle analysis is not one of my primary tools in my trading box, I do use it as an ancillary indicator. The bottom-line of the article is a prediction for long-term cycles in equities to bottom in Nov 2008, interest rates to bottom (bonds top) in Jun 2008 and commodities to continue higher into Feb 2010 (George Soros seems to agree) . Oh, and by the way, some of my own cycle analysis is pointing to the next 3-5 days as critical for the indices, bonds and crude oil.

Busted!

Expiration Friday is seeing the ranges that presisted for 20 days in both the SP and NQ being broken to the upside. The DJ is stronger still, trading near early Jan08 highs. The closes today are key as stated in yesterday’s comments - above SP 1374 and NQ 1870 are strong with closes above SP 1390 and NQ 1894 breaking the range. Until there is a daily clsoe back below at least these latter two levels, the buyers are back in control.

Home on the Plains

Last week it was home on the range. Earnings news from GE sent the market lower to end out last week, with the longs being saved by positive news from INTC, IBM and JPM (relatively positive) early this week. The bigger picture however is unchanged with the key indices stuck in a longer-term consolidation (the “plains”). The smaller ranges for the SP and NQ are at 1349-1389 and 1824-1894 with the “plains” defined as the areas that have existed since 03.24.08, four days after the Bear Stearns debacle and the last FOMC meeting. These consolidation zones are defined as SP 1309-1389 and NQ 1765-1894 with sellers above SP 1370 and NQ 1860 and buyers below SP 1330 and NQ 1800. Until the market breaks SP 1374 or 1319, NQ 1870 or 1780 on a closing basis, expect the consolidation to continue.

Crude Oil – She’s Warming Up Again

Once again the weekly inventory numbers provided the fuel for the bears.  After testing up to 7390 and 7335 last Thursday and Friday, in line with the projected resistance zone specified last week, the sellers were back on Monday.  After the failure at 7200-7400, the opposite side(support)  is now being tested once again at 6750-6950.  Today posted the lowest settle since mid-April and below last week’s low as well as below the recent 7000-7500 range.  At a minimum on a break of 6800, the mid-60s should be tested.  A sub-6750 close turns the short-term momentum to the downside with a potential objective of 6000-6200.  A daily close below at least 6150-6450 is required to establish a long-term top with a sub-6000 close confirming.

Currencies – Reversal Day

After the Pound set a new 52-week high Tuesday on the higher-than-expected US CPI data without the other major currencies confirming the move, the sellers jumped in.  The result was a reversal day to the downside for the major currencies (to the upside for the US Greenback).  As stated last week, the upside momentum is strong and a pullback to the late-April, early-May breakout areas sets up a potential position trade for at least a retest of the past week’s extremes.

Currencies – Buy the Rumors, Sell the News…and repeat

The US Dollar Index (DXC) tumbled to new weekly lows at 8450 with the major crosses including the Euro (ECM6), Pound( BPM6), Canadian (CDM6) and Yen (JYM6) eclipsing recent highs going into the FOMC rate decision news. News of another 25 bps increase initially caught the longs off guard, producing a quick drop to new session lows before reversing to new weekly highs (day session basis) with the Dollar Index setting another low at 8437.

Obviously, the buyers remain the dominant force and until there is a catalyst otherwise, don’t fight the momentum.  The breakout patterns mentioned over the past month remain in effect and continue to be tested.  Due to the continued move higher, support has moved as well. Watch for retracements to the late-April, early-May trading levels for entries with the objectives at the recent extremes. These levels are approximately as follows: DXC 8610-8640, BPM6 18250-18300, CDM6 8950-8970, ECM6 12600-12630 and JYM6 8860-8890.

Crude Oil – Inventory Update

The inventory numbers were baked into the cake prior to Wednesday’s open. On news that gasoline inventories came in roughly double the expected gain with crude and distillate builds less than half the expected gains, crude dropped roughly $1.00/bbl to support in the mid-6900s before rebounding back through the early high. News of production problems at two major refineries (Texas City and Bayway) put the shorts on defense once again. By session close, the market tested back above Tuesday’s high to the 7220 level before settling just below the key 7200 level.. Nothing has changed – the zones to monitor remain at 6750-6950 and 7200-7400.