Crude Oil Trading Range Tightens

By: Kingsley_Anderson

Contrary to early 2008, oil and the stock market are now marching in lock-step. As the stock market's trading range tightened, oil's has done likewise. Is crude setting up to take-off? As one may already know, explosive moves in either direction usually occur after a tight consolidation. However, in which direction it may go is difficult to say at this time.

Oil is currently trading between $40-$50. These are the support and resistance areas traders are watching. A move in either direction will likely be significant. Notice also, over the last two weeks the range has become extremely restricted. This is additional evidence that a big move in crude may occur.

Much like the stock market indexes, oil must also contend with its 50 dma. The first test was a failure, but notice that it did not trigger a massive price collapse. The slope of the 50 dma has also evened out, indicating that the decline has slowed.

As for the ETF, USO, the price actually sits below the support area. Its trading range is between $29-40. Notice the pick-up in volume over the last several weeks. Our buyers beginning to accumulate shares?

Ultimately, a break from the abovementioned trading range will give a good signal as to where oil is headed. Even still, those that bought USO back in the Summer should not hold their breath. Crude lost almost four times its value. After such a speculative run-up and climactic sell-off, the oil chart suffered severe technical damage. While oil may eventually embark on a new uptrend, especially if the economy improves, it will take time before oil reaches the levels seen in the Summer of 2008.

Positions: None

By Kingsley Anderson

http://tradethebreakout.blogspot.com

Kingsley Anderson (pseudonym) is a long-time individual trader. When not analyzing stocks, he is an attorney at a large law firm. Prior to entering private practice, he served as a judge advocate in the U.S. Army for five years and continues to serve in the U.S. Army Reserves. Kingsley primarily relies on technical analysis to decipher the markets.
Kingsley's website is Trade The Breakout (http://tradethebreakout.blogspot.com)

© 2009 Copyright Kingsley Anderson - All Rights Reserved
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