Crude Oil to $150, Then Major Correction?

Includes: DBO, OIL, USO
by: Moby Waller

As everyone knows, crude oil prices have been rocketing higher. It seems inevitable to me at this point that we will hit $150/barrel on the futures. Often when everybody guesses and discusses that a stock or index will hit a key round-number level, it becomes a self-fulfilling prophecy in a way. The sentiment and speculative aspects of market prices will drive that security to that key level.

On that note, examine the long-term Crude Oil Futures Cash (CL1600) monthly chart (click to enlarge image):

This market has been on a massive upswing since bottoming in late-2001, and appears to have gone parabolic since late-2006. Parabolic uptrends are destined to correct sharply, in my experience, because the froth and speculative nature of such large moves inevitable is taken out.

I anticipate that a move above the Top BigTrends Acceleration Band to $150 is likely to occur, which may mark a significant top in crude oil prices, and I would then expect a pullback to the key $100 level (which besides being a huge psychological round number, is also where the Middle Acceleration Band is currently located).

To me a logical time this correction to occur would be as we close in on the Beijing Olympics, which begin in early-August, or shortly after the Games are done. Beyond the $100 level, I see support at the Bottom Acceleration Band and from the 40-Month Exponential Moving Average, both currently in the low-$70s and rising (so around $75 should be a further support level).

Now, I've been wrong before, and this is just a forecast of a potential rally to $150 and subsequent strong correction. If this does occur, you can profit by being long energy and oil stocks through the rally to $150, and bailing out quickly around that level and possibly even going short through the use of Put Options.