CRUDE OIL OUTLOOK: JANUARY 24,2011
US ECONOMIC RELEASES FOR TUESDAY JAN 25,2011
10:00 AM US CONSUMER CONFIDENCE (EXP READ 54.3)
FOMC MEETING BEGINS
OUTLOOK FOR CRUDE OIL
The gloom and doom criers for $100.00 have some reason to take pause for a moment, allowing the market to retest a key support level at $87.60 in the front month contract. Apparently, OPEC is acting ahead of potential March madness in an effort to try and stabilize oil price in order to try and set a basement price level near $85.00.
The near $5.00 fall in crude oil prices since last week suggest that most market participants see the hangover of $100.00 plus oil prices as a real concern and not simply an asset class to try and reap rewards without far reaching consequences.
Looking at a daily chart of March Crude for January, I spotted what appeared to be a Head and Shoulders pattern forming from January 4th through the breakdown on January 20th. With Monday's follow through selling pushing the daily RSI indicator below 30, it would appear that the market may be approaching an oversold level.
I expect the March crude contract to trade in a channel between $86.60 and $90.70. A lack of fresh bearish news should offer support back to the upside, though a break of $86.60 could set up a test of the $85.50 level. Upside within the next two months should find significant resistance at $94.38.
Tuesday's Crude Oil action could include a retracement from the $87.60 in the overnight back up to $88.20.
Option premium in the March $85.00 puts is looking somewhat rich with a little over 20 days to go before expiration. A bull call spread with a naked leg put could result in a position that allows for a collect of credit with some exceptional risk reward parameters. If you do decide to take on a position such as this, remember that below strike price of the put sold, this trade will have the same risk as shorting a futures contract at that price, plus commission costs.
Richard Roscelli
Market Charts provided by Track and Trade Pro 5.0. Track and Trade Pro 5.0 is a product of Gecko Software. http://www.geckosoftware.com/
Please feel free to contact me with any questions or thoughts at richsjet@netzero.net
Any recommendations or commentaries found in this analysis are strictly of an opinion based nature. Past Performance is not a guarantee of future results. There is a risk of substantial losses when undertaking any type of financial investment and one should consider carefully whether a financial product meet ones risk tolerance. Seek out the guidance of financial professionals to clarify elements of financial products and strategies that you do not fully understand. Any decisions to purchase or sell a financial vehicle will be the full responsibility of the person authorized to make such transactions.
