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West Texas Intermediate Potential Weakness

May 23, 2011 9:46 AM ET
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Headlines and Open Positions:
There is very little in the way of news headlines to directly impact crude oil valuations, and potential price action looks set to continue the choppy and overlapping trading patterns that are now dominated by global equity sentiment. Trade desk updates recently highlighted continued consolidation above support at 95.00 on West Texas Intermediate (WTI) (96.80), and for USO (39.50), the exchange traded fund (ETF) that tracks oil momentum, to consolidate above support at 37.50.

Expectancy is for a break lower in crude prices if global equity indices find sellers. Any existing long-oil positions should be closely monitored while recent price action is absorbed, the path of least resistance in the near-term looks to be a move lower in value for WTI, and especially USO which looks to have some catch ing up to do to match recent oil selling.

Oil Price Action:
Strong buying activity was seen at 97.00 on WTI in April and May. This potential price reversal area (swing point) has recently been broken and will be closely monitored. Market alerts will be sent to subscribers if momentum builds at this level.

Main WTI support: 93.50. Main WTI resistance: 101.50.

ETF Price Action:
Strong buying activity was seen at 42.00 on USO in April and May. This potential price reversal area (swing point) will be closely monitored now that it has been broken. Market alerts will be sent to subscribers as things unfold, but upside resistance will now be very strong.

Main USO support: 36.50. Main USO resistance: 40.50.

Technical Correlations:
WTI 100-day Simple Moving Average (SMA) is at 99.00. 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.

There have been very few trade signals on WTI recently. Clients will be notified when price action breaks near-term support areas.

Sentiment towards WTI trade is weak after recent tests of support started looked susceptible to a major break lower. Price action favors a move through support. 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.

The detail below forms a part of the in-depth daily analysis provided to subscribers. This helps guide traders with analysis on intra-day price movement, trend, and momentum. Clients will note how regularly the Swing Point and Support or Resistance areas below are used each day.

Content taken from TheLFB Trade Plans

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