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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Building The Case For A Short-Term Bottom

Crude Oil Outlook

February Crude Oil futures have been drifting sideways since reaching a new contract low at $53.94 on December 16. Although the major fundamentals remain bearish, oversold technical factors may be helping to contribute to the current price action.

There may also be some activity going on behind closed doors between the Saudis and the other OPEC nations that could be underpinning the market, or the cause of the sideways action may be end-of-the-year book squaring by commercial traders or the hedge funds.

Because of the thin holiday trading conditions, we are not likely to know if this sideways action is indicative of bottoming action or just a temporary stop on the way to $50, $40 or even $35 a barrel crude oil.

The downtrend is relatively easy to see on the charts and the fundamentals are simple to understand. When this occurs, trend traders and non-professionals tend to jump in to go along for the ride. The problem with this is that these types of market players often become complacent because they are making money too easily and feel they don’t have to babysit their positions as closely as they would under normal two-sided trading conditions.

If this is occurring then the market will become susceptible to short-covering rallies. One way this sell-off is going to end at least in the short run is when the major shorts begin to cover. The other way is when the hedge and commodity funds run out of bottom-pickers to…

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