Oil Market Update (February 26, 2009)
After falling from last summer's peak of $146/barrel, oil has consolidated in the $35-$40/barrel range for several months and appears poised for a short-term rally--possibly a significant one.
Astute reader Dave D. recently requested a technical update on the oil market. He mentioned this entry from last September: Checking In on Oil's Head-Fake (September 18, 2008), and once again I asked frequent contributor Harun I. for some charts and commentary.
Chart 3.Thank you, Harun. My crude takeaway (pun intended) is that despite horrifically nregative news on the global economy, oil refuses to drop below the $35-$40 range and it held a triple bottom--technically quite significant. The fact that Large Traders are holding net long positions tells me the smart money is expecting oil to rise.
Also, note how oil is bouncing off the lower channel. The last time it hit the bottom channel line in late 2001, the price popped dramatically soon thereafter.
Despite the technical headwinds, the price has built a decent trading range base. Given the RSI indicator is diverging and the ROC is in oversold territory, then a short-term rally looks possible and perhaps overdue.
In full disclosure, I have been long APC and VLO during this consolidation and am adding some May calls (options) in anticipation of a significant short-term rally. Please read the HUGE GIANT BIG FAT DISCLAIMER below; this is NOT trading advice, it is only a disclosure of my trading positions.
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