Oil surges through key threshold. Don't buy it

Published Wed, Apr 13 20165:00 AM EDT

A much anticipated rally in crude prices may turn out to be just a tease, technical analysts warned Tuesday as the commodity pierced through its 200-day moving average for the first time since July 2014. Since falling to a 13-year low of $26 on Feb. 11, oil prices have bounced back furiously, up more than 60 percent, leading investors to wonder if the bottom in crude may finally be here. Traders watch the average price of the last 200 days to determine whether a security is still in a long-term trend. But as oil bounces back, some market watchers are not buying into the move. Source: FactSet "The U.S. (West Texas Intermediate) Crude Oil Continuous Futures contract rallied over the month but to date there is little to suggest a sustained reversal in price," wrote Louise Yamada, managing director of Louise Yamada Technical Research Advisors, in a report to clients earlier this month. Yamada told CNBC Pro her thoughts had not changed given Tuesday's action. Source: Louise Yamada Technical Research Advisors The technical analyst points out that her monthly momentum model, a long-term trend indicator, remains negative given the severe losses sustained since 2013. In fact, a more than 70 percent drop in crude prices from those levels leads Yamada to expect that even if a bottom was in place, there would be a need for an extensive recovery process. Here's how she advises clients to play this trend: "There is resistance short term at 40-42, then at 50 where the 1999-2001 broken uptrend lies, and with the declining 20-month MA offering resistance at 54. If 35 holds on any pullbacks, the case for stabilization might develop. Technically, one could suggest that a wide range from (26?), 30-50 should contain oil price for the foreseeable future for WTI." Similarly, Ari Wald, head of technical analysis at Oppenheimer & Co., believes a long-term rally in oil may not be sustainable. "WTI is in its best six months of the year (March to August) meaning this is where we're looking for oil's base to develop, but within, what we see as a wide-trading range, it's difficult to get behind this call for the long run," Wald wrote in an email to CNBC Pro. Source: Oppenheimer Asset Management and Bloomberg From a trading perspective, Wald thinks oil could reach the $45-$48 resistance level, but the longevity of that trade remains feeble. "We prefer to play it indirectly, buying cyclicals less influenced by what may continue to be wide fluctuations in commodity prices over the coming quarters," he said.

Michael Nagle | Bloomberg | Getty Images

Since falling to a 13-year low of $26 on Feb. 11, oil prices have bounced back furiously, up more than 60 percent, leading investors to wonder if the bottom in crude may finally be here. Traders watch the average price of the last 200 days to determine whether a security is still in a long-term trend.

But as oil bounces back, some market watchers are not buying into the move.