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Schork Oil Outlook: WTI Bears Have a Glimmer of Hope

Wednesday, 8 Dec 2010 | 11:58 AM ET

Is it a blow-off top?

Spot Nymex crude oil traded above the $90-barrier for the first time since the implosion of the 2008 bubble. Crude oil for January delivery hit an intra-day high of 90.76. It was the highest price paid for prompt delivery since October 2008.

Be that as it may, yesterday’s spike to new highs and the subsequent 2.8% plunge off of those highs create an ugly picture for oil bulls, i.e. a blow-off top.

Put simply, the aforementioned technical signal is defined by a steep, rapid rise in the price path of the underlying asset that is then followed by a precipitous drop in value.

Moreover, last Friday the market traced into an inverse head-and-shoulders pattern with a head of ?$80 and a neckline in the mid-$89s. On Monday, The Schork Report noted that “… a strong move (and close) above the neckline”… cleared a path towards $95!

"Yesterday’s price action creates a template for further corrective weakness in oil." -The Schork Report, Stephen Schork

That’s a potential problem for bulls. Yesterday we saw a strong move above the neckline, but the market closed well below it. That’s not to say we cannot see a rebound today, especially if we get a cooperative report from the DOE this morning or if doubt grows in Obama’s ability to woo Reid and Pelosi to join his tax compromise with the GOP.

Nevertheless, bears now have a glimmer of hope because yesterday’s price action creates a template for further corrective weakness in oil. That is because yesterday the market broke through a heavy area of congestion in between 89.36 and 88.88 as a lot of new length was excised from the market.

The $64 questions now is… does this length want to risk coming back into the market here… or wait for a retrace towards the next level of heavy congestion below here in between 85.76 and 84.96?

Here at The Schork Report , we are advising clients that we are going to side with the latter.

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Stephen Schork is the Editor of The Schork Report and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.

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