Oil Forecast January 23, 2012, Technical Analysis

The oil markets fell hard on Friday as the fears of Iranian blockades seemingly are starting to subside. Because of this, there will be a bit of a withdraw of support in the markets. The Chinese PMI numbers also came out a bit weak, and this suggests that perhaps there are more reasons to question demand for oil. Also, there is a suggestion that the oil reserves in Cushing, Oklahoma being built up, and this will continue to add to the growing supply.

With the fall of the markets on Friday, it shows that the market is starting to give way. The $105 level seems to be resistive going forward, and might even be unbreakable. Of course we can never truly know ahead of time, but it does appear that the market will start to show real weakness. The $98 level did act as support at the end of the day, but if that level gives way, it is very likely we hit $95, and if that gives way – we will find $90.

The fall does seem fairly strong and that the move could be a sign of things to come. The markets have been pivoting around the $100 level over the last several sessions, and we have been waiting for some kind of sign. While we haven’t got it yet – the tide does seem to be shifting in favor of the bears.

The breaking below of the Friday level will be our sell signal, and we will place two contracts short. The reasoning for this is that in this kind of market it can often be prudent to take partial profits. (For those of you that have the ability to trade CFDs can do this trade in other units.) Either way, with the history of $90 being so supportive, it might make sense to close out half of the position at that level assuming we do get our sell signal. After that, we are willing to let the other part of the position ride as a breakdown could be brutal. The market has been supported on a lot of “hopium” lately, and the lack of demand could be the undoing.

Oil Forecast January 23, 2012, Technical Analysis
Oil Forecast January 23, 2012, Technical Analysis

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