cryptogon.com news – analysis – conspiracies

June 7th, 2008

WARNING: This is not a recommendation to buy, sell or hold any financial instrument.

Before I begin, I want to emphasize that this market is for experts only. Unless you trade for a living, I wouldn’t go near this either way.

Oil has formed a bullish engulfing candle formation on the weekly chart. It has also broken out of its previous range and closed at a fresh record high. On their own, these are very bullish developments. While the weekly stochastic remains in extreme overbought territory, price levels trump oscillators. Oil strategies should favor long positions ABOVE about $135.20 as long as you remember the state of the weekly stochastic. Below $135.20, consider shorts again, with the premise being that a full oscillation down could be due. Shorts must be managed carefully, as they are countertrend and very vulnerable to squeezes/reversals like we saw today. Consider a straddle if it retries $135.

NEAR TERM: VERY VOLATILE, DO NOT EXPECT SMOOTH SAILING HIGHER ON OIL FROM HERE.

The oil story is being driven by several factors, however, the dollar is the most critical of these. Note below that the U.S. Dollar Index is still range bound. There are two supports directly ahead for the dollar, around 71.90 and 71.40 (see chart below).

INTERMEDIATE TERM: ABOVE $135, BULLISH; STRONG CORRECTION POSSIBLE BELOW $135.

The uptrend is very much intact. If the dollar does not find support between present levels and 71.40, oil will be headed higher. My strategic positioning on the dollar is bearish, regardless of the shorter term, countertrend cranks we’ve been seeing.

I rarely include fundamental analysis in my technical work, but today’s move on oil was so unusual that I went looking for an “event.” Extreme oil moves are usually driven by supply disruption events, but that wasn’t the case today. What single event was potentially behind the largest gap higher in oil prices—ever?

On June 5, 2008 at 5:38 p.m. the Wall Street Journal published a piece about the Ambac and MBIA credit rating downgrades (Cryptogon post here). While the news was circulating before this, I’m using this story as the benchmark. I’ve indicated the release of that news on four hour charts of West Texas Intermediate crude oil, spot gold and EUR/USD. I also indicated the news on the U.S. Dollar Index daily interval chart.

A lot of people are saying a lot of things about oil right now.

Nobody, as far as I’ve seen, has drawn an arrow on an intraday oil chart indicating what happened after something like one trillion dollars worth of debt was downgraded in one fell swoop. I emphasized the point by including several other dollar affected assets.

What do you see?

I see dollars trying to hide in many different places, all at once.



Weekly Interval West Texas Intermediate Crude Oil



Four Hour Interval West Texas Intermediate Crude Oil



Four Hour Interval Spot Gold



Four Hour Interval EUR/USD



Daily Interval U.S. Dollar Index

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