Does oil have further to run or is a top near by? The answer may depend more on context than raw price, and the answer matters to more than oil-stock traders and investors, as we’ve seen reappear the clear inverse linkage between the market and Crude.
Long time readers know we’ve been consistent in pointing out that Crude has found higher and higher levels of support following the sell off after last year’s spike in the fall, and finally, analysts are starting to revise upwards their basic assumption – annual average crude price – which is a key factor in valuing oil companies. The rally in oil stocks has therefore been no surprise, but now with prices very stretched its time to at least locate the exit doors if not storm through them.
One of these weeks we can be sure heating oil demand will drop, as winter – already over here in my neck of the woods – will eventually fade from memory, and demand will drop, even if only for a short period of time before summer driving again drives up demand.
Tomorrow’s petroleum status report may provide just the catalyst needed to set a failed test of top in motion, or do quite the opposite. 10:30 am…
Importance of Context
It might surprise you to learn that Crude last week traded at an all time high, at least relative to what can be bought on the futures market, today.
Why is this not big in the news? Because the news often focusses on the spot price, or the historical contract high price which was indeed higher still. This is important: those prices are largely, if not completely, irrelevant.
This is true simply because we can’t buy or sell October’s record spot price – that was a one day, one second, event. Nor can you buy or sell the futures contract of that time, which has since expired. There are no lurking stops aimed at just that price as that price has little meaning in the context of today.
Since support and resistance, and fear and greed, are driven primarily on what traders and investors are able to buy and sell _today), the contract of the day is the one to pay attention to.
Crude Contract
Crude – current contract, intraday – in this context price is retesting last week’s high, on the eve before the weekly petroleum status report.
Crude – current contract, daily – in this context price is already trading at new all time highs. Any test of top spanning several months automatically puts traders on high alert, and with oil being the most talked about commodity in history, we know emotions are running high.
The long-side camp got their wish today; selling today’s low is the setup for a potential failed test of top, and for me will be a clear signal to take profit in, more, if not all, my oil holdings.
Waiting for price to prove itself is free… See you at 10:30.
05.03.08 15:37 #