Picture Gets Worse for Crude Oil Bulls

The crude oil market bears got another shot of downside price momentum this week amid a volatile U.S. stock market and still more damage produced on the technical charts.

On Thursday, September crude oil futures on the New York Mercantile Exchange hit a fresh five-week low. Prices are now challenging strong technical support at $70 a barrel. In a little more than a week's time, crude oil futures prices have received a haircut to the tune of $8 a barrel, from last week's all-time high of more than $78.

A drop in nearby crude oil prices below $70 would produce still more serious near-term technical damage and would suggest a new trading range between $65 and $70 a barrel. Also, recent price action on the technical charts negated an uptrend line on the daily chart that was drawn from the June lows.

To regain solid upside near-term technical momentum, the crude oil bulls would have to produce multiple closes above $75 a barrel, basis nearby futures. That's a tall order, given the present technical posture of the market.

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Source: FutureSource and TradingEducation.com

Fundamentally, the situation in the crude oil market has also turned more bearish during the past week. A very jittery U.S. stock market has led to worries about the U.S. economy's health amid U.S. subprime mortgage lending woes that have some investment funds in serious trouble. News Thursday that BNP Paribas-backed investment funds are in trouble further spooked investors and the crude oil market. A nervous investment community like we have at present leads to ideas of less demand for raw commodities, including crude oil, from industry and consumers.

Geopolitical concerns that had been driving crude oil prices north have all been discounted by the market and are already factored into futures market prices. It will take a fresh major fundamental development to drive futures prices solidly higher in the near term.

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At time of publication, Wyckoff had no positions in any of the stocks mentioned in this column, although positions may change at any time.

Jim Wyckoff is a senior market analyst for TradingEducation.com a free educational Web site. In addition, Wyckoff writes a blog offering current market commentaries every morning on TraderBlogs.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Wyckoff appreciates your feedback; click here to send him an email.