Oil Technical Analysis October 11, 2011

Light Sweet Crude

The CL contract rose on Monday as traders took on more risk globally. The market looks like it is currently in the process of widening the trading range that market participants will be comfortable with. Previously, we had a range between the $80 and $90 mark, but now it appears that with the recent lows being put in, that the area that will be tradable will be between $90 and $70. This is a significant widening. The market looks strong, but we would be hesitant to own crude near the $90 mark as we see it as resistive. We are looking for weakness to see, especially closer to that mark.

Brent

Brent markets reacted to the global rally and gained over $2. The market has recently made a lower low, and this suggests that the path of least resistance is down. We see that the $100 area above is resistive, and we think that selling will resume at that area. Because of this, we are sellers on signs of weakness at that level. We don’t buy now that the market has risen so far, as it would only be chasing at this point, which of course is a great way to lose money.

With the global markets being so fearful these days, any “risk on” trade like oil has to be treated with suspicion. Because of this, we still like selling rallies, but only at resistance levels. The overall trend still looks weak for energy in general and we fell this should continue to be the case over the next several months. Until we can break above $100 in CL and $120 in COIL, we are not going to be buying oil as it is simply a momentum trade and susceptible to false breakouts and whippy trading.