Short Term Crude Oil Price Recovery
Last week, Crude put in one of the best single week rallies on record. Such a move was obviously not the result of bargain hunters or demand buying; it was driven purely by overly-leveraged speculators covering Short positions as the market turned higher. Once such moves get going, they often take longer than six sessions to resolve, so I expect that Crude will continue higher in the coming week as traders continue to cover their Shorts.
The 2nd rally in the current Daily Cycle is beginning to take shape now, and I expect Crude to hit a new Daily Cycle high near the end of the week. If the equity markets are going to recover somewhat during the next 2 weeks, then Crude is likely to follow along. But I’m still very bearish on the entire energy sector and especially Crude oil. From my perspective, the current rally is nothing more than a Short-covering exercise.
At this point ($45.30 zone) one could consider taking another Long trade, with a stop just below the 10dma, as it looks like crude can move well above the top Bollinger Band over the next week. Then further along in the Daily Cycle, I will strongly consider a Short trade once crude becomes greatly overbought around the $50-$53 levels.
