Technicals | Apr 14 2011
By Rudi Filapek-Vandyck
The TechWizard reports his monthly price charts show crude oil has now closed outside the top Bollinger band for three months in a row, suggesting an overheated market. The last time this occurred was back in 2008 and we all know what happened back then as crude oil experienced a "blow off top" and subsequently corrected to much lower price levels.
The Wizard is not predicting anything of similar magnitude but a market correction seems on the cards nevertheless.
It is his current view that if crude oil closes below US$96.50/bbl on a monthly basis the market might suffer from an extended period of selling pressure. The Wizard anticipates under such a scenario downward pressure on prices for crude oil will continue for at least 2-3 months.
Adding further to the likelyhood of a market correction is the fact that speculative "longs" in the market are now at a twelve month high. The Wizard points out this is more often than not a counter trend signal because professional traders who bought at much lower levels will be looking to sell to secure profits.
All in all, it looks like investors should expect more weakness for oil, predicts the Wizard.
The TechWizard is the pseudonym of Scott Morrison, whose experience in financial markets exceeds twenty years. Morrison operates his own website nowadays at www.techwizard.com.au. All views expressed are the TechWizard's, not FNArena's (see our disclaimer).
Technical limitations
If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.
