Thursday, September 1, 2011

Fridays Open Becomes Critical For Oil Bulls to Gain The Upper Hand

Crude oil closed slightly higher on Thursday as it extends the rally off August's low. The mid range close sets the stage for a steady to higher opening on Friday. Stochastics and RSI are overbought but todays bullish close signals that the oil bulls have gained some momentum. Solid follow through is a must on Friday if the bearish trend is to come to an end anytime soon.

Oil companies with workers in the Gulf of Mexico helped to push prices to a 4 week high as evacuations started on rigs operating in the Gulf. Traders appear to be pricing in supply disruption well ahead of the storm.

Crude oil is at the top of the Donchian Trading Channel and is heavily overbought. We would not be surprised to see a pullback from current levels. At the present time our long term monthly Trade Triangle is negative, while our short term daily and weekly Trade Triangles are positive. This is creating a mixed picture for crude oil.

However, the longer term monthly Trade Triangle must be given more weight than either the daily or weekly Trade Triangles. We expect this market to pull back from current levels and from the top of its Donchian Trading Channel.

Closes above the reaction high crossing at 89.19 are needed to confirm that a low has been posted. If October renews this summer's decline, the 75% retracement level of the 2009-2011 rally crossing at 71.72 is the next downside target.

First resistance is the reaction high crossing at 89.19. Second resistance is the May-July downtrend line crossing near 94.26. First support is the reaction low crossing at 79.38. Second support is August's low crossing at 76.15.

Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 70

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