December Oil Looking Bullish
Thursday, November 8th, 2007
By George Leong, B.Comm. for Profit Confidential
Oil is one hot commodity these days, as I’ve said in previous commentaries. The trend is bullish and continues to trend higher in spite of overbought conditions. Once a strong trend is in place, it is difficult to trade against it. Dow Theory states that a trend stays in place until it is broken. The trend is heading towards $100.00 a barrel and I expect this will occur.
On Wednesday, the December light, sweet crude surged above $98.00 a barrel to $98.62 on the New York Mercantile Exchange. The approach to the $100.00 level as suggested by Goldman Sachs, which was pushed aside as ridiculous, now appears to be in motion, with a break certainly to materialize in the near term as long as the technical strength holds and fundamentals support higher oil prices.
The current oil market is driven by news of declining U.S. supplies, a weaker dollar, geopolitical concerns in Iran and Pakistan, and the failure of OPEC to increase production.
The high oil prices are a real concern because of their negative impact on transportation companies, for which oil is a major part of expenses. For the economy, the high oil prices translate into higher corporate costs and impact earnings. For the consumer, high oil prices mean higher gasoline prices. People could drive less and make fewer trips to the malls, which in turn, impacts retail sales and the economy.
The near-term technical picture for the December oil continues to be bullish at this time with strong Relative Strength, but the buying has also created an overbought condition on the chart, an indication of potential near-term selling pressure. The December oil is trading above its 20-day and 50-day moving averages of $89.76 and $82.50, respectively, as well as the 200-day moving average at $72.19. The upside target is $99.71 and $100.00, where I expect some selling pressure because it will be the first time trading over this psychological barrier.
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Tags: oil prices, oil stocks, stock market, U.S. dollar
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
