Reversal Looming?

Looking at a chart of crude, traders will notice most momentum indicators within oil a incredibly overbought. What's more, in terms of candlestick patterns, the chart is showing dark cloud cover, which appeared two sessions ago. Until crude breaks ascending support of the May range, a reversal is not confirmed; however, a breach of $130 a barrel could be the first indication that bulls are losing momentum.

Over the weekend, news of lower Australian output and a pipeline station bombing in Nigeria failed to bring oil to higher levels, which could be a signal that traders are feeling crude is becoming increasingly top heavy.

Conversely, markets can often stay irrational for long-periods of time, thus a close above $135 a barrel will likely prompt traders to begin thinking about another move up, potentially into the $140 area as an initial target.

Exit is everything.

Mark Whistler

5/27/08