Amid recent sickly U.S. economic data, odds are increasing that the U.S. will experience negative economic growth (call that recession) in the coming quarters. U.S. economic recession would certainly mean reduced demand for crude oil, which could also spill over into less demand for crude worldwide.
Technically, the trend in crude oil remains solidly up, with no early clues that a market top is close at hand. Chart-watchers know that the adage "the trend is your friend" is one of the most powerful technical observations. Multiple closes above $100 a barrel, basis nearby Nymex crude oil futures, would open the door to another leg up in prices. A drop back below and multiple closes below solid technical support at $95 in nearby crude would be an early technical clue that a near-term market top is in place in the crude oil futures market.
My bias is that the upside is limited in crude oil futures as prices hover around the century mark. Futures market traders are front-runners, and it appears to me that all of the bullish fundamental news has already been factored into the crude oil market price structure. The caveat for this notion is an unexpected geopolitical "market shock" that would likely send crude oil futures prices to a brief spike high.
Oil Shorting Oil Isn't So Risky 12/7/2007 2:54 PM EST A calendar spread lowers the cost basis of my bearish USO options play.
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.
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