Crude Oil Market Analysis (1/22/07)

Today’s market action followed earlier forecasts.

COMA on Jan. 19 forecast that “if the market cannot stay above $54.00, it will again test and break the $50.00 support.” Also in response to a reader’s question overnight about the market action after the pit trading would later begin, COMA stated overnight that “the market overall looks weak so far since opening,” and that “the market action since opening shows a lack of momentum needed to trade above $54.85.”

The market rode Friday’s momentum at the opening of pit trading to open at $53.82, but since it lacked the momentum to trade above $54.85, it topped out at $54.65 and fell precipitously for $2.58 to a low of $52.07 before recovering some ground to close at $52.58.

Today’s market is nothing more than the bulls and bears again battling for positions. The bulls tried to ride Friday’s momentum with the north wind on their back to try to push above $54.85. Once they failed, the bears launched their broadside and depressed the market by more than $2.50.

Fundamentally, the market is slightly above its equilibrium, so a potential big move in either direction is unlikely, but the market risk remains on the downside.

Technically, the bulls need the market to stay above $53.10 just to avoid another bear assault to run toward the contract’s low of $51.03. However, unless Wed.’s DOE report shows a crude oil draw of 2.5 million barrels or greater, the market’s test of the $50.00 support is inevitable. In other words, it is not that the fundamentals justify the market’s drop to $50.00, but it is that the market wants to go there.

Strategy: Jan. 19’s strategy to sell at $53.80 (with a stop at $55.05) was filled today, stop out at $54.20, take profit at $50.30.

Dr. Chen