Crude Oil Going Parabolic

May 22, 2008 by day_trader

I want to take a minute and discuss the oil futures situation. It seems that they continue to rise with no end in sight and that gas prices at the pump are destined to continue higher. Do you want the good news or the bad news first?

Well, i'll start with the bad to get it out of the way. The crude oil futures contract looks like it is in the beginning phases of making a parabolic move of some sort. Even with all the chatter about a top in oil, structurally, it is still bullish and continues to move higher without any significant pullbacks. Technical indicators would tell you that this thing is extremely overbought and it is, but overbought markets can stay that way for quite some time(i.e. Stock market bubble from 1998 to 2000). At this point, crude futures are driven primarily by speculation and this being said, I am looking for a blow off top to put an end to all this insanity. This means that we will probably be looking at a move to 150 and potentially higher in the near term. 150 will be a psychological magnet for the crowd.

Oddly enough, we still do not have an investor community that is overly long or bullish the black gold. When looking at the commitment of traders report for crude oil, you can see that we have not achieved high levels of optimism as of yet. In a parabolic market such as this, we need to see tremendous buying and bullishness to mark a top. It will happen soon I believe....

The good news....well, once this parabolic top is put in, the crude futures should get CRUSHED. The stronger the parabolics, the stronger the decline that follows. The top that we are putting in here should be a level that we don't see for quite some time. Maybe they are running this thing into the July 4th holiday? We will see but it will come back to reality sooner rather than later.

Now, if Crude decides to break down through the last swing low at about 120 on the chart above, the entire picture changes for the worse.

Stay tuned and do not speculate in this market if you are a beginner at trading futures. You may get your shirt ripped off, literally.

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