Crude Oil Trading
The Smart Profits Report: Issue #351
Thursday, September 7, 2006
Crude Oil Trading: A Red Flag for Oil Bears as Technicals Point to a Rebound
By D.R. Barton, Jr.
Advisory Panelist, Mt. Vernon Research
It’s the best indicator around…
When everyone expects the market to do one thing and it does the opposite, that’s a powerful signal. And this signal may be even more useful when it is subtly disguised.
This powerful indicator is showing that oil and crude oil trading will most likely turn back to the upside.
Let’s take a look at why this may be the best time for a short or intermediate buy in oil since the beginning of the summer…
3 to 15 Billion More Barrels Awakens the Bears
A front-page article in the Wall Street Journal today said that Chevron and a host of support companies are poised to announce that they have a way to extract oil from previously unreachable parts of the Gulf of Mexico. This new technology could unlock 3 to 15 BILLION barrels of crude oil. That’s a huge amount - big enough to be bearish for the crude oil market.
Indeed, the market did react in a negative fashion, opening down strongly. At that point, everything was going as expected: potential supply increase = prices going down.
Oil rallied for most of the day and actually finished with a small gain. All the major business networks were covering this big news - but the market didn’t buy it.
This alone would usually not be enough to push me to make a market call. But when it lines up with some of my favorite technical indicators, I have to take notice. So let’s look at some typical bands and near-term technical support levels…
Technicals Signal a Buying Opportunity in Crude Oil Trading
Take a look at the crude oil chart below. Notice that prices just tested the key support level established by the lows from May and again in June of this year. Crude prices have also been flirting with the lower Bollinger Band during the recent drop - just like it did at the May and June lows, as well as the yearly low back in February.
But while that’s all very interesting from a technical analysis perspective, what can you do with this information?
Well, simply put… if you’re bullish on crude oil or stocks driven by crude oil prices, and you’ve been waiting patiently on the sidelines for a place to get into the market on the long side, now is a good time to buy.
As always, any crucial geopolitical news could drastically affect oil prices. So if Iran denounces its nuclear program, or Hezbollah unilaterally lays down its weapons, then all bets are off.
But in the absence of any drastic news, the technicals have aligned to show that crude oil trading is poised for a short- to- intermediate-term rebound.
Great Trading,
D.R. Barton, Jr.
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Today’s Smart Profits Cribsheet
- While many financial pundits and giddy investors sometimes believe that just one piece of upbeat news will be enough to send the markets soaring, history has proven that this isn’t always the case. The oil market demonstrated that again today, grabbing the Chevron news and sending the index down. Find out why it’s often best to “sell at the sound of trumpets” in Smart Profits #335, The Stock Market’s Reaction to Good News: Why It’s Best to Sell at the Sound of the Trumpets. 072506
- Make sure you check out the Smart Profits Oil Forum that we held here back in May. You’ll discover some of the key factors contributing to the movements in today’s market and pick up tips on where this volatile sector could be headed next. Get all the details in Smart Profits #310, The Price of Oil: “There Is No Oil Shortage”.
Related Articles:
- The Best Commodities Website on the Internet
- The Future of Crude Oil Prices: How a New Saudi Development is Bearish for Oil Prices
- Technical Indicators: How to Overcome the “Evil Twins of Trading”
The Chart of the Week
Buying strong stocks on pullbacks is a great way to build a portfolio, and if you take a look at the Suncor (NYSE: SU) chart below, you can see that the stock has pulled back to and tested its lower Bollinger Band. From a technical perspective, this means it could be poised for a rebound.
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