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Crude Oil: Size Doesn't Matter

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In short, a lot of buying pressure has been satisfied - is being satisfied - coincidentally at the market's current price.

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Crude Oil's last timing low is one month old, on March 21 at 62.40 (basis June contract). The 13-dollar rally since then has gained 20.75%. Care to annualize that? Care to buy into a market already annualizing that?



The break above August and January's prior highs in the 70.00 area is just two weeks old. This "breakout" portion of the rally has gained 7.50%, a slower pace than pre-breakout. The bark appears to be worse than the bite. That's not very obvious right now, because the only thing small about the post-breakout bite is in comparison to the pre-breakout bark.

It isn't likely that the trend is peaking, but can the trend be faded? Quite a few Fibonacci ratios indicate that this leg of the trend has ended. The only question is whether the next leg is a correction, or an accelerated blow-off rally.

The month-old rally was preceded by a month-long consolidation. Friday's high attacked this consolidation's 261.8% swing measurement (A).

The same consolidation can be stretched back a couple of days to include its prior low. A 61.8% measurement of this pattern was tested at Friday's high (B).

Swing measurements of January's Double Top (261.8%) (C), February's pullback (61.8%) (D), April 12-13's last correction prior to new highs (261.8%)... the list goes on.

In short, a lot of buying pressure has been satisfied - is being satisfied - coincidentally at the market's current price. Usually, price falls as buying pressure declines. Occasionally a different breed of buyers takes the baton without skipping a beat, and the rally's pace accelerates into a blow-off surge. For this possibility, short positions require tight stops - not just in terms of price, but also in terms of time. A sudden jump would essentially be a buy signal.

If a normal correction unfolds, it would eventually target an attack on the 67.00 area - 3 dollars under the August and January prior highs. Any lower would have a tough time recovering, and under 64.00 would signal that a more substantial decline was underway.
No positions in stocks mentioned.
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