Crude Oil Rallies Look Like Selling Opportunities

Crude oil futures prices buckled Friday on news that a bill to bail out the U.S. auto industry failed to pass the U.S. Senate late Thursday, after House approval of the measure earlier in the week. The news immediately depressed U.S. stock index futures prices, which in turn pushed crude oil futures prices solidly lower and reversed Thursday's price gains in oil.

From a technical perspective, Friday's price action confirms a steep five-month-old downtrend on the daily chart for January Nymex crude oil futures. January futures prices are presently trapped between technical support around the $40-a-barrel level and by technical resistance at $50.

Brief rallies in the price of crude oil continue to be selling opportunities for the technically strong oil market bears. It would take a close in January crude oil futures prices above technical resistance at the last "reaction high" on the daily bar chart, at $55.98, to negate the present downtrend in place on the daily chart and give the bulls some fresh near-term technical momentum and confidence that a market low is in place.

Traders will continue to look to the U.S. stock market for price direction in crude oil. On days when the stock indices are under solid pressure, the same will be likely for the liquid energy markets. And on bigger rally days in the U.S. stock market, crude oil prices will also move higher.

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Source: FutureSource and TradingEducation.com

Crude oil bears were further cheered Friday when newswires reported that Goldman Sachs, the investment bank that had previously predicted a spike to $200 a barrel earlier this year, cut its 2009 forecast for oil prices to $45 a barrel. That's a 40% downward revision from its previous forecast of $75 a barrel during the next year. The investment bank attributed the major downward revision to reduced demand for energy worldwide, amid economic recessions in major industrialized countries. Goldman also reportedly predicted that crude oil prices would average $30 a barrel in the first quarter of 2009 and then rise by $10 a barrel in each of the following three quarters of 2009.

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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.