Light Sweet Crude initially rose during the Wednesday session as the bounce from the $98 level continued. The market has been consolidating between $98 and $104 since late December, and this move would have been the expected outcome. However, the market turned around in the middle of the session and is closing below the $98 level finally.
The $98 mark has been a trigger point for us to sell this market, and this development has us selling a break of the lows from the session. The candle is closing at the very bottom of the range for Wednesday, and this should also point to further weakness as well. The market has looked a bit soft lately, and as a result we have been waiting for this to happen.
The $94 level will more than likely be supportive to one degree or another. If we see a breakdown at this point, we would be watching this area to see if the bulls step back in. If they don't, the market will look for $90 before it is all said and done.
The demand part of the equation simply is lacking, and the prices for oil have been supported more by the shenanigans in Tehran than anything else. The ability for this commodity to stay aloft without that drama is very unlikely overall. Until the situation is completely resolved though, there is always the chance that buyers could step back in.
We are selling a break of the bottom of Wednesday's range, and will look to move stop losses to break even once we get in the $95 area. At $94, we will be watching to see if the market can give way. If it does - we should be able to aim for $90 next. The upside is very limited, and we would have to see a post-$105 level close in order to get long of oil at this point. The markets are far overpriced, so this scenario is highly unlikely at this point in time. The market can also be sold on rallies if we see weakness on smaller time frames.
Oil Forecast February 2, 2012, Technical Analysis
Crude Oil Pivot Points (Time Frame: 1 Day)
Name S3 S2 S1 Pivot R1 R2 R3