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Crude Oil Looking for Direction

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheLFB-Forex) -- The last West Texas Intermediate (98.75) four-hour chart signal was generated Jul 13, with a break above 97.80 that targeted 99.10, which has completed its cycle. A near-term signal was generated on July 12, with a break higher from 97.00 that targeted 97.50.

WTI is trading in the lower half of a trading channel created in May and June that has 104.50 as upside resistance and 89.50 as downside support. The 97.50 price point is the technical area that has drawn in the most momentum over the last two months, and has created volatility again this week.

Potential for new trade signals to form is weak, after intraday moves bounced off the 200-day SMA area at 93.00 and hit resistance at 98.50 which is the 50-day SMA area. The previous reversal through resistance at 100.00 on WTI has created an upper barrier that will be very hard to break in one session. Now is not the time to be holding WTI positions for the long term as valuations look lost.

Headlines: News wires are very quiet regarding crude oil valuations, but this is a week of important economic releases that will set valuations for July.

Where to Now:
  • Crude oil is in a very mixed trading cycle that will not move any of the mid-term neutral trends until a weekly chart can close above 101.50 or below 89.50.
  • Downside targets may include another test of 93.00 if S&P 500 equity trade closes a weekly chart below 1295, which could pressure regional growth, and subsequently oil, valuations.
  • Expect upside tests of 99.00 resistance to fail if increased buying volume does not hit the overall market soon.
  • Low-volume ramps higher are creating subsequent price action weakness when participation levels increase on the down days, which is creating massive intraday volatility.
  • This review of technical sentiment is signaling to sell WTI at the previous day's high, and buy at the previous day's low with very tight targets.

    WTI Correlations: WTI has a 36-month 75% correlation to S&P moves, and a 90% correlation to the euro (EUR-USD) currency pair. Daily trading range on WTI is $2.50, which is below the historical norm and indicates decreasing speculative interest, and increased volatility as support and resistance areas are tested. WTI 200-day Simple Moving Average is at 93.10.

    Previous Signals: The second quarter of 2011 generated seven crude oil trade signals issued to clients, six of which completed and covered over 4.20 dollars of net movement at Target 1 areas, and 8.40 dollars of net movement at Target 2 areas. The misses came on days that instant volatility hit the global markets in reaction to breaking news headlines. Most signals have been generated from one-hour chart algorithms.
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