Sunday, October 23, 2011

Crude Oil Closes The Week in Overbought Mode

Crude oil closed higher on Friday and above the May-July downtrend line crossing near 87.33. The mid range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI are overbought and are turning neutral to bearish signaling that a short term top might be in or is near. Closes below the 20 day moving average crossing at 83.57 are needed to confirm that a short term top has been posted. If December extends the rally off this month's low, the 38% retracement level of the May-October decline crossing at 90.65 is the next upside target.

The crude oil market continues to mirror the action in the equity markets. The highs seen on Wednesday in the December contract at $89.69 a barrel remains to be taken out if this market is going to move higher. With mixed Trade Triangles and a Chart Analysis Score of +55, there is no clear cut direction for this market at the moment.

Crude oil is very overbought on the Williams % R indicator. We would not rule out a pullback to the $80 a barrel level, which would represent a 61.8% Fibonacci retracement. Our long term Trade Triangle continues to be negative and we expect it will once again dictate the tone of this market. Intermediate term traders should be on the sidelines and long term traders should continue to be short the crude oil market.

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