The Bull/Bear Case for Crude Oil

I hope everyone had a good weekend. I’m sorry for not getting a post up yesterday, I had a very busy weekend and just didn’t have a chance to get something posted. Today we are going to look at bull/bear case for crude oil.

During nearly all of last year there was a large triangle pattern that had been created in oil. We are currently up against the resistance area of the falling trend line that we’ve run into four previous times. As we hit this possible resistance we can also see that momentum based on the RSI indicator has broken into an overbought level which has caused trouble for crude in the past. We won’t have confirmation of stalled momentum until it breaks back below 70, until then it could very well continue higher while maintaining its overbought status.

Crude oil

Next up we have the Commitment of Traders COT) data on the bottom panel of this chart of oil. Looking back at the previous three highs (only the past two are visible on the chart below) we can see that large speculators had a net long position of nearly 300,000 contracts. Currently they are have just over 200,000. This doesn’t mean that oil can’t top out until large speculators net long position hits 300,000. It just means there could still be some room for oil to run while traders continue to accumulate contracts.

Looking at the red line on the chart below we have the ‘smart’ money, commercial traders. During previous peaks commercial traders have held much larger net short positions, essentially a mirror image of the net long position large speculators have held.

Oil COT

So while crude oil is up against resistance and might need to work off an overbought level, there appears to still be some room for it to run if traders continue to collect long contracts in the black gold commodity. I’ll be watching price action closely in the coming weeks to see how we react to resistance and if we get a false break or if large speculators follow through in bidding oil higher.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

About Andrew Thrasher, CMT

Andrew Thrasher, CMT is a Portfolio Manager for an asset management firm in Central Indiana. He specializes and writes about technical analysis as well as macro economic developments.

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