Fellow contrarians know that we’ve been watching the crude oil market for a sign of where this rally may be heading.
Right now, crude looks absolutely gassed. It dropped below it’s 200 day moving average last week (yes, the 200-day MA that we love to watch) – and has just managed to bounce up a couple of bucks today, still well off it’s recent high.
The astute trading minds over at Diamond Slice concur that something is amiss in the crude market:
The BP Gulf spill, gasoline demand reaching 3.5% yoy, prices at the pump at $3.00, refinery capacity above 89%, Cushing, OK crude storage dwindling to 14 million barrels, tankers holding countless barrels off the coast, OPEC members breaking quota, unrest in Iran, and sovereign default contagion in Europe have been on the radar of “black gold” speculators for the past two months. These realities are the extension of maturing trends over the range bound past two months, but only one has significantly altered WTI Crude prices. A casual deduction might blame oil’s price destruction on a stronger Dollar, due to the recent flight from all things Euro. Contrarily, we see default risks in the EU and retrenching speculation creating the vacuum through which industrial commodity prices, most notably Oil, will fall.
You can catch their complete crude oil outlook here.
Crude is probably still a bit oversold in the short term, and so it’s pop here may continue into the week further. It will be interesting to see if it makes a “lower high” before turning south again. That potential move, along with a subsequent drop once again below it’s 200 day MA, would be a strong bearish signal – both for crude, and for broader financial markets too.
Remember, topping processes don’t occur overnight – it happens as individual markets gradually split away and roll over. It’s already happened to China – now oil – and likely US equities. Looks like this baby is going down – should be an interesting week!