Thursday, April 21, 2011

Crude Oil: Update

It has been over 3 months since I identified the potential for a "very strong move" in crude oil.  Absurdly low interest rates and geopolitical unrest are the likely culprits, and the last time I looked, these issues remain with us.  In addition, the technicals, which we will review in this article, remain very constructive.

Figure 1 is a monthly chart of West Texas Crude, cash data.  Prices remain within a well described up channel.  $120 seems like a reasonable price target.  In terms of sell signals (i.e., the presence of multiple negative divergence bars), I don't see any on the horizon.

Figure 1. WTI/ monthly

Figure 2 is a weekly chart of the United States Oil Fund (symbol: USO).  Three weeks ago, prices "broke out" from a fairly substantial base.  In the last two weeks, prices have pulled back to several times to re-test that support level or "breakout" point.  I would expect USO to hold above $42.

Figure 2. USO/ weekly

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