Crude oil is taking a bit of a breather after rallying nearly 40 percent from its low last month. And according to one technical-minded trader, the price action in the next few days will be crucial in telling whether oil can maintain its recent momentum.
Gordon's cause for caution relates to the correlation between the and crude oil. "Over the last year, the dollar has rallied and the crude oil market has sold off quite sharply," said Gordon.
The U.S. dollar index is up 22 percent in the past 12 months while crude oil is down 45 percent in the same period. "But in the recent rally with crude, the dollar has been consolidating." This, to Gordon, is troubling, as he believes that unless there is a meaningful breakdown in the dollar, crude oil will not have enough fuel to continue its rally.
On a chart of crude oil, Gordon identified a "must hold" technical support level that will keep this crude oil rally alive. "Right now we have support at the lower end of this uptrend channel around $54-$55 a barrel," he said. That level also happens to correspond with prior resistance on the chart.
"I like the crude oil trade, but I'm putting in a very tight stop below $54," added Gordon, who believes if oil holds support it could make a run up to the upper end of the trend channel at $61 a barrel.
However, knowing the volatile swings oil has made in the past months, Gordon warned, "If we fall below that level, I know the message that the dollar is giving us is telling us that crude oil is probably moving lower."
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