Last week's technical report suggested that June crude oil was poised for a volatile move because of the triangle chart pattern formation it had formed. Although the chart pattern indicated that the market could trade sideways for several weeks, bearish traders couldn't wait and drove the market through support with a vengeance.
Following the break through the support line at $91.63, June crude oil accelerated to the downside when it took out the last swing bottom at $90.23. A sustained move through this level led to a test of another bottom at $87.22.
(Click to enlarge.)
Although the market penetrated this level with a move to $85.90, there are signs on the daily chart that it may have reached an oversold level and could be ripe for a short-term retracement. Since the fundamentals and the technical are both signaling further weakness, any rally is likely to be sold.
Based on the current downside momentum, the market is on pace to test the June 2012 bottom at $81.46. A move to this level will send a strong signal to investors that professional traders believe the economy is poised to weaken further.
As of the week-ending April 9, the Commitment of Traders reports showed that long speculators liquidated 20,158 contracts. Although commercial traders increased their long positions by 34,759, they still maintained their overall short position in the market.
This week's report is likely to show more liquidation by long speculators and…
Last week's technical report suggested that June crude oil was poised for a volatile move because of the triangle chart pattern formation it had formed. Although the chart pattern indicated that the market could trade sideways for several weeks, bearish traders couldn't wait and drove the market through support with a vengeance.
Following the break through the support line at $91.63, June crude oil accelerated to the downside when it took out the last swing bottom at $90.23. A sustained move through this level led to a test of another bottom at $87.22.
(Click to enlarge.)
Although the market penetrated this level with a move to $85.90, there are signs on the daily chart that it may have reached an oversold level and could be ripe for a short-term retracement. Since the fundamentals and the technical are both signaling further weakness, any rally is likely to be sold.
Based on the current downside momentum, the market is on pace to test the June 2012 bottom at $81.46. A move to this level will send a strong signal to investors that professional traders believe the economy is poised to weaken further.
As of the week-ending April 9, the Commitment of Traders reports showed that long speculators liquidated 20,158 contracts. Although commercial traders increased their long positions by 34,759, they still maintained their overall short position in the market.
This week's report is likely to show more liquidation by long speculators and additional short-positions. Commercial traders may want to take advantage of the low prices; therefore, we may see another increase in commercial long positions.
Recent reports have confirmed that the pace of the U.S. recovery is weakening. This is leading to speculation that demand will drop for crude oil. With the supply and demand picture indicating further weakness, look for crude oil to continue to feel downside pressure although technically oversold conditions could trigger periodic short-covering rallies.
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