The DeCarley Perspective Trading Newsletter

Crude oil drifting higher, but resistance looms

  This newsletter was emailed to DeCarley Trading brokerage clients on February 17th, 2012

Commodity Market Analysis by DeCarley Trading  

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**There is substantial risk of loss in trading futures and options.

**Past performance is not indicative of future results

On the radar:

  • Crude oil drifting higher, but resistance looms

Crude Oil Futures

In January we issued a DeCarley Perspective noting the seasonally bullish bias in February.  We've since witnessed crude oil futures rally from the mid $90's into the mid to low $100's (about an 8% move).  The move has been measured and occurred on rather low volatility, but is sizable nonetheless.  Although seasonals continue to suggest an upward bias in crude, we feel as though outside forces such as European concerns and a potentail equity market correction, might begin to interfere with the uptrend (even if it is just temporary). 

Much of the gains have been forged on concern over possible supply disruptions compliments of Iran and ongoing drama in the Straits of Hormuz.  This particular waterway is arguably the most important checkpoint in the world; in fact, in 2011,  17 million barrels of crude passed through this point.  It is stats like these that make it possible for crude prices to move higher on a "what if" basis.  However, it seems highly unlikely that Iran would be willing or able to manage such a feat...and they know this.  In the off chance that they did find a way to freeze the flow of goods, it would create short-term supply disruptions but there are alternative (although more costly) routes than traveling through the Straits of Hormuz.  Accordingly, we are somewhat comfortable with a strategy of being bearish on sharp rallies in this market. 

Specifically, April crude appears to be vulnerable to a spike high move near $105 per barrel as short and spread (crack spread) traders are squeezed out of positions,  but if seen this could be a good opportunity for the bears.  We see resistance in the April contract near $104.11 and $105.50ish, beyond this it is $108.90.  Support lies near $99.50 (our initial objective should the market turn the corner) and again near $95.80.   


 Crude Oil futures chart

DeCarley Trading

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**There is substantial risk of loss in trading futures and options.

Past performance is not indicative of future results.  The information and data in this report were obtained from sources considered reliable.  Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities.  Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.



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