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Sideways Crawl For WTI And USO

May 17, 2011 6:27 AM ET
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Headlines and Open Positions:
There is very little in the way of news headlines to impact crude oil valuations, and potential price action looks set to come from overall global market sentiment to daily risk. Trade desk updates recently highlighted continued consolidation above support at 95.00 on West Texas Intermediate (WTI), and for USO, the exchange traded fund (ETF) that tracks oil momentum to consolidate above support at 37.50.

Expectancy is for a break higher in crude prices if global equity markets can find buyers. Any existing short-oil positions should be closely monitored while recent price action is absorbed, as potential reversal signals were trying to form last week.

Oil Price Action:
Strong buying activity was seen at 97.00 on WTI in April and May. This potential price reversal area (swing point) will be closely monitored and market alerts sent to subscribers if it breaks.

Main WTI support: 96.50. Main WTI resistance: 101.50.

ETF Price Action:
Strong buying activity was seen at 43.00 on USO in April and May. This potential price reversal area (swing point) will be closely monitored and market alerts sent to subscribers if it breaks.

Main USO support: 43.20. Main USO resistance: 47.50.

Technical Correlations:
50-day Simple Moving Average (SMA) is at 106.00.  20-day SMA is at 108.30. WTI has a 36-month 75% correlation to S&P moves, and a 90% correlation to the euro (Eur/Usd) currency pair.

Daily trading range on WTI is $2.70, which is above the historical norm and indicates increasing speculative interest.

Outlook:
Potential signals to buy WTI from 101.00 were forming on Friday, but failed to confirm that momentum would be strong enough to easily follow through. Clients will be notified when price action breaks near-term resistance areas and signal confirmation is in place. 

Sentiment towards WTI trade is mixed after recent tests of support held steady. Price action favors a bounce off support that buys the recent dips. Traders committing to oil trades at these levels need to reduce trade size, as volatile intra-day trading patterns are likely to continue in the near-term.

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