Fundamentals
Crude Oil dropped sharply yesterday, as there was simply not enough momentum to carry prices beyond the $100 level. Failure to break through this pivotal level created a profit-taking opportunity for longs. The Oil market has been steadily rising since late June without so much as a hiccup. The US Dollar falling due to the Fed firing-up the printing presses created ripe conditions for Oil bulls. There is some hope that all of the pumping from various Central Banks could aid the economy, but this was much more of a currency play. The energy markets have also benefited from the constant turmoil in the Middle East. With some of the heavy-handed leaders removed during the Arab Spring, extended protests may be the rule rather than the exception.
Technical Notes
Turning to the chart, we see the October Crude Oil contract briefly trading above the $100 mark on Friday, before falling back to close below the resistance level. This can at least be partially attributed to overbought technical conditions. The inability of the October contract to break through resistance also may have triggered profit-taking. The question now becomes whether prices are simply correcting in order to mount a new charge at $100, or if this is the beginning of a more substantial pullback.
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About Mike Zarembski
Born in the grain pits of the Mid-America Commodity Exchange (MidAm) in the early 1990s, Mike's futures career soon shifted to the offices of TD Waterhouse in 1999, followed by Xpresstrade in 2002 and eventually optionsXpress in 2007.
