Has the oil market bottomed out?
Which technical indicator did crude oil not break yesterday? We closed the Egypt/Libya contagion gap from February, the Relative Strength Index (RSI) has now crossed into over-sold territory of 18.33 and the Erlanger Trend Direction crossed from a red bar above the center line (a pull-back) to a red bar below the center line (a downtrend).
The lower Bollinger band of 89.63 was crossed and settled below, the short, mid and long term trenders have turned negative, William’s %R study has been in oversold territory as of August 1st and traders blew past our 89.45 intra-day low.
Analysts at The Schork Report are holding onto our bearish bias for the day, but oil below the 90.00 mark should be looking very cheap for the long term players – after all, China did not go anywhere, Libyan production did not resume and North Sea production did not rebound. No one knows where it will bottom, but we advising clients to keep in mind a double bottom was established around the 85.00 mark in January and February of 2011.
We can’t overstate how important this morning’s U.S. jobs report from the Bureau of Labor Statistics (BLS) is or more to the point, how the energy markets will react to it. Recall last month, the cognoscenti scurried to up their prediction of the June report after ADP reported a much stronger than anticipated gain in private employment on the eve of the July 08th report from BLS.
After ADP reported a 157K gain, most predications for the June BLS report were hiked to between an increase of 125K and 150K. These prognosticators went from champs to chumps overnight after the BLS reported a mere gain of 18K.
In the post-mortem of the report’s release, a curiously large swath of talking-heads simply chose to ignore the report. That is to say, the BLS had it wrong in June and the pundits the pundits had it right. We will see a true-up in July.
Perhaps we will, the jobs report is a notoriously difficult one to forecast and it is prone to egregious corrections one and two months after the initial release. For example, in last month’s report the BLS revised lower the estimates for April and May by 6½% to 217,000 and by 54% (!) to 25,000, respectively. On Wednesday of this week ADP reported a gain of 114K jobs in the private sector for July. The market is looking for a gain from the BLS in nonfarm payrolls this morning of between 75K and 100K.
Yesterday on the Nymex crude oil bears closed “the gap? at 87.88, with authority.
As written in today’s issue of The Schork Report , if support in oil is going to hold, then is it not unreasonable to expect it to hold here. A favorable report from the BLS this morning will certainly help out the bulls. On the other hand, last month the BLS reported that the work week in June shrank, hourly pay shrank, overtime work shrank, temporary jobs shrank, the workforce shrank and unemployment rose.
If the BLS fails to “true-up? this morning and releases another stinkeroo employment report, then oil bears just might be able to set their sights on the 50/62% Fibonacci retracement area or — as our friend Dennis Gartman likes to call it — “the box.?
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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.