The Next Big Move in Oil

The Next Big Move in Oil
By Jeff Clark
September 22, 2009

Oil's next move could be huge... and it could happen this week.

For the past two months, the price of oil has ping-ponged back and forth between $65 and $75 per barrel. By the look of the following chart, though, it's about to break out of that price range...

This is an ascending-triangle pattern made up of a series of higher lows and a consistent resistance area. Most of the time, this pattern breaks out to the upside. And if oil can break above resistance at about $75, this chart projects a move to as high as $90 per barrel.

There are, however, a couple of problems with the bullish scenario...

First of all, there's the negative divergence on the Moving Average Convergence Divergence (MACD) indicator. This momentum-based indicator often provides the first warning sign that a chart's primary trend is about to change.

Second, there's a strong probability that the U.S. dollar is attempting to pound out a bottom. I wrote about the potential for a bottom in the dollar back on September 3. All of the conditions that existed then still exist, and the greenback has traded higher over the past couple of days.

If the dollar rallies from here, then oil – which has benefited from a falling dollar – will likely break down below its rising support line. A drop below $66 per barrel projects a move all the way down to about $50.

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It's too early to tell for sure which way the chart is going to break. But one way or the other, we're looking at the potential for a big move. A breakout to the upside will carry oil, oil stocks, and the overall stock market in general even higher. A breakdown will lead to much lower prices for oil and oil stocks... and it may finally signal the end of the bear market rally.

Watch the direction in which oil breaks. It could be one heck of a move.

Best regards and good trading,

Jeff Clark

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	Last	Change	52-Wk
S&P 500	1064.66	-0.34%	-15.17%
Oil (USO)	35.85	-3.42%	-56.61%
Gold (GLD)	98.36	-0.31%	+14.40%
Silver (SLV)	16.54	-0.96%	+32.74%
U.S. Dollar	76.14	-0.76%	+0.27%
Euro	1.48	+0.80%	+0.02%
VIX	24.06	+0.59%	-24.98%
HUI	417.57	-1.52%	+28.98%
10-Year Yield	3.49%	0.02	-0.26

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Company	Sym	Industry
Blackbaud	BLKB	business software
Magellan Mid	MGG	pipelines
Copa Holdings	CPA	airlines
AGL Resources	AGL	gas utilities
CGI Group	GIB	software
NetApp	NTAP	data storage
Juniper Networks	JNPR	networks
MicroStrategy	MSTR	business software
MannKind	MNKD	biotech
Gymboree	GYMB	children's stores
Endurance Spec	ENH	insurance
Tellabs	TLAB	telecom
Odyssey Re	ORH	insurance
Discovery Comm	DISCA	television
TJX Companies	TJX	dept stores
Jos. A Bank	JOSB	clothing stores
Benchmark	BHE	circuit boards
SolarWinds	SWI	software
Vistaprint	VPRT	online printing
Aeropostale	ARO	clothing stores
Red Hat	RHT	systems software
ConAgra Foods	CAG	packaged foods
Southern Copper	PCU	copper mining
OmniVision Tech	OVTI	semiconductors
SXC Health	SXCI	health IT
Acuity Brands	AYI	home furnishings
Informatica	INFA	business software
James Hardie	JHX	building products
Hertz	HTZ	car rental
Life Tech	LIFE	biotech
Express Scripts	ESRX	pharmacy svcs
Power Integrations	POWI	semiconductors
Cheesecake Fact	CAKE	restaurants
Quality Systems	QSII	health IT
Perot Systems	PER	outsourcing
New Oriental Ed	EDU	for-profit ed
Cerner	CERN	health IT
Annaly	NLY	virtual bank
Sanofi-Aventis	SNY	Big Pharma
Align Tech	ALGN	medical devices
Athenahealth	ATHN	health IT
Regeneron	REGN	biotech
Perfect World	PWRD	online games
Dr. Reddy's Labs	RDY	pharma

Company	Sym	Industry
First Busey	BUSE	bank

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