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The light sweet crude markets had a bearish session on Friday, but bounce back quite a bit in order to form a hammer. It should be noted however that the overall week ended up forming a shooting star. This suggests to us taste upon longer-term charts that we are going to find a range bound trading between the $95 level, and the $87 level.
Based upon that information, we are not willing to buy this market at this point in time as we see $95 as significant resistance. If it does give way however, we are more than willing to go long as we think the next move will be to the $100 level.
This is one of those markets that will be subject to headline risks as tensions heat up in the Middle East, especially with Iran. This is essentially a battle between supply and demand constraints, and headline risks. The supply and demand issue in oil at this moment in time is in so much a concern as economies around the developed world are slowing. However, if there is some type of shooting war or military action in the Middle East, this always puts a risk premium into the oil markets.
Another thing that could be pushing the oil markets right now is the Federal Reserve. It is expected widely that the Federal Reserve will begin another round of quantitative easing in September, and this of course will weaken the US dollar in relation to commodities. A lot of times traders will buy things like crude oil in order to store wealth as the value of the US dollar deteriorates. However, we are currently in a currency war that is a race to the bottom. So we don't know if this will pan out in the long run.
This market looks relatively bullish at this point in time, but we have to respect the weekly charts and will not go against them. Because of this, we think that the next move will more than likely be down, but we are more than willing to go long if we do break the 95 handle.