Crude Oil Prices forecast for the week of December 3, 2012, Technical Analysis

The light sweet crude markets fell to the $85.00 level during the week, but bounced hard in order to form a hammer at the end of the Friday closing. This market looks like one that wants to go back and forth and consolidate over the longer-term. We obviously have outside ranges of 110 and 80, but we also have an inner area between 185 that the market seems to be listening to. Because of this, we feel that higher prices are likely, but perhaps only for a short time as we think the volatility will continue in the December market is without a doubt one of the less and less liquid as time goes on.

There are plenty of reasons to be concerned about oil prices at the moment, but the Middle East seems to have cooled down. Ironically, prices have gone up since the Israelis and Hamas have stopped shooting each other, which defies conventional wisdom. This is perhaps because the Federal Reserve has hinted that there may be more stimuli coming in the December meeting. If that’s the case, it will weaken the US dollar in general and should bring up commodity prices overall.

Looking at this chart, we can see that there are several minor areas between here and $100, but if we do get more stimuli in the next couple of weeks, we will see higher oil prices via default as the US dollar loses purchasing power in general.

However, the candles over the last month have been two shooting stars, a doji, and a hammer. This just screams consolidation and confusion, and as such we may have a difficult time trading this market for anything other than the short-term scalp or two. If you are not comfortable trading the oil markets presently, you shouldn’t feel bad as many people are in the same boat.

Another option could be to use CFD markets or even options as it will help to limit your risk or at least tailor the size of the position so that the damage will be limited if you are involved.