Tech talk: Crude fencing

January 31, 2010 06:00 PM

Lunge, thrust, parry, retreat and redoublement. The summer Olympics are not for another two years, but the crude market will be the perfect Olympic practice venue for fencers.

The stalled pattern on the weekly candlestick chart (see “Thrust and parry”) and the hanging man on the monthly candlestick chart are signs that the New York Mercantile Exchange WTI crude market is due for a pullback in the first quarter of 2010. The tweezer bottom on the annual candlestick chart indicates the pullback will be shallow, short-lived and will provide a fresh buying opportunity.

In addition, the run-up in prices at the end of 2009 was made on exceptionally low volume, calling into question the durability and technical significance of the move higher.

Look for a pullback to just a tad below $70 per barrel, $69.88 to be precise, before initiating a fresh long position. Precision is everything when going in for the kill.

The weekly parabolic is long with the stop placed at $69.18, making a fresh long at $69.88 a low-risk position. The first upside objective will then become $81.04, the top of an up channel. A break above $81.04 will not necessarily signal a runaway bull move since there is resistance at $87.97. Behind trend line resistance is the 50% retracement of the entire move down to $32.48 from $147.27 seen in 2008. The 50% retracement is $89.88, which will present a formidable hurdle for even the most stalwart bull. By all means, take profits on a long position up at $89.88, and reverse into a fresh short.

Look for a retreat to the $82 level, the high posted in 2009. What was once resistance will now become support. That would be the place to cover a short and reverse back into a fresh long position.

The slow stochastic and Relative Strength Index on all time frames — weekly, monthly and annual charts — show a market that is neither overbought nor oversold.

Do not get greedy; play those $10 ranges even as the trading parameters move higher throughout the year.

En garde!

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