Just a couple of weeks ago I was reading headlines and analyst reports on oil going to $100 per barrel. Since then the price has eroded from $84 to $74. Some say the 12% decline is only temporary. Of course our initial reaction is they are long oil and want the price to go back up. However, the reality is they believe the economy is going to pick up and the demand for oil will rise. Not a bad theory unless you are looking at the economic data in the rear view mirror. Which essentially is how we all look at economic data. The data has been lack luster the last two months showing signs of a weak recovery at best. Taking all that into consideration the forecasts looking forward are more robust for the first half of 2010. If they come to fruition the prognosticators looking for $100 oil may get their wish.
Looking at the chart of oil below the trend has been higher off the January/February lows. However, since the June highs they road higher has come with plenty of volatility. As you can see on the chart the last three months has resulted in a upward bias channel. Since hitting a high near $84 on January 11th the price of oil has declined back towards the bottom of the channel. It currently resides at support near $73.70. A break from here would bring the bottom of the channel into play. You can also see the 200 day moving average is near by as well at $69.24. If oil has any hope of moving towards the $100 level look for the commodity to hold support at one of these levels near term.
If I were looking to play crude, (I am by the way) I would put this on my watch list and establish and entry price based on holding support at one of the key points defined above. My stop would be established at the reversal point and break of support at that level and my target would be the top of the trading range. This is obviously a short term view on the price of crude currently, but one worth playing if it pans out.
Remember every investment carries risk of principle. Define your strategy with a clear entry point, stop and target. This is being added to our Watch List today.
Disclosure: Looking for break to enter.