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Complimentary Market Commentary

Written by Eric Reinholtz, director of retail futures and options trading and a senior market strategist for DAW Trading, whose market commentary is sought by individual traders, CTA's, professional traders, and many financial media outlets. Choose your markets of interest and how often you would like to receive it, and Eric will email the Market Commentary directly to your Inbox. Sign up today for your COMPLIMENTARY Market Commentary!

Price forecasting has become increasingly more difficult this year, largely because of it's disconnect from the stock market and other commodities prices. While gold and silver have seen significant sell-offs from their contract highs, crude oil futures remain pressed against all-time highs.

A slow-down in the U.S. economy has done little to temper enthusiasm for higher crude oil prices. Traders have seen numerous agencies lowered their demand forecasts for crude oil for 2008. That has given OPEC justification for stating numerous times that they will not raise production levels despite the historically high prices.

'Deleveraging' has become a hot term when describing what is currently taking place on Wall Street. Yet the deleveraging process has not affected the energies the way many analysts thought. The grain complex is another sector that many pointed to as 'vulnerable' to deleveraging since the prices are raced to record highs due to major speculative buying, but Corn and Soybean futures are both higher since the CBOT raised initial margins by 50% last month.

Traders continue to gauge crude oil prices off the dollar. The dollar has continued to set new lows against the Euro and British Pound, and ten-year lows against the Yen, adding fuel to the fire for rising crude prices. Without a bottom in sight for the dollar index, no reason to think it will be an obstacle for taking crude oil significantly higher this summer.

One former CBOT floor trader described crude oil futures to me like this, he said, "Crude oil rallying is like asking to an eight-year-old why they didn't do their homework.  You're going to get a ton of excuses and none of them are going to make any sense."

(Charts Provided by Futuresource.com)

Technical justification for $125 is a lot easier than looking for fundamentals validation.  Looking at a weekly chart, the $125 level appears to be the first target level.  Longer-term price pattern should remain as long as market can hold 98.50 overall.

(Charts Provided by Futuresource.com)

Daily price chart shows more clearly the breakout that took place on April 7th.  That day's low, 105.85, should contain any selling pressure of the next few weeks.  Although the stochastic reading shows a potentially over-bought condition, this reading runs the risk of becoming 'embedded'.  An embedded stochastic reading is when the "K" and "D" lines cross over above 80%, and stay in an over-bought condition.  This environment leads to a market continuing on its course direction without regard to the market's internals.

Bottom-line:  A sign of a great bull market is when the market continues to rally in the face of poor data. Traders should continue to focus on short-term pullbacks to enter the crude oil market.  First downside support for the May futures should be at 109.00 level, followed by 107.75 after that for.  Resistance should be at the double-top at 112.20 level, and above that that 113.50 to 113.75.  Any close above 114.00 would spark a new wave higher.

Fact or Fiction: $125 Crude Oil Futures?  It's my opinion that this statement is true and will become fact sometime later this year.  Sign up today for my daily energy and metals updates.  Best wishes traders!

Eric Reinholtz is a Senior Market Strategist with DAW Trading. Mr. Reinholtz relies heavily on his expertise in charting markets for his exact entry and exit scenarios. Mr. Reinholtz's focus targets very realistic money-making strategies more so than cryptic buy & sell signals that can get flashy publicity, but have little to do with actual portfolio alignment. He believes a professional way of approaching the markets should emphasize scaling-in during serious purges (ideally after bases are built), and scaling-out gradually into strength (ideally into extended parabolic moves), happily not worrying about "milking" the last percent out of a move

Complimentary Market Commentary

Written by Eric Reinholtz, director of retail futures and options trading and a senior market strategist for DAW Trading, whose market commentary is sought by individual traders, CTA's, professional traders, and many financial media outlets. Choose your markets of interest and how often you would like to receive it, and Eric will email the Market Commentary directly to your Inbox. Sign up today for your COMPLIMENTARY Market Commentary!