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Today’s Trading Edge: Oil May Rise Toward $100 as Supplies Dwindle and if Price Closes Above the100-Day SMA

Posted by Edward Moya on Feb 5, 2014 10:03:00 AM

WWM OIL FEB 5 2014

Energy commodities may get a slight boost from the abnormal winter that North America is experiencing.  With 15 states having winter storm warnings and a forecast for brutal weather that could affect 24 states this weekend, expectations for more oil may help this recent surge continue.  While increased demand for natural gas and oil will be used to heat up chilly places, the warning signs of the global economy may prevent any significant surges much beyond the $103 level.  Too many risk-off catalysts may help trigger a reversal over the next month and that will prevent us from forecasting a major rally.  Concerns about the U.S. employment situation, Chinese manufacturing, European deflation and emerging market turmoil all could help trigger a reversal with oil prices.           

Price action on the daily chart highlights a potential bearish Gartley pattern that may have just completed its corrective move yesterday.  Price is tentatively testing the 100-Day Simple Moving Average and is potentially poised to make a new high for this year.  If we see a rally above 98.60, momentum traders may look to take this move towards the century mark.      

If price continues to exhibit bullish behavior and surge above the key century mark, an upside target of 101.75 will be our immediate target and that would be followed by the 104.50 level.  If the bearish Gartley pattern resumes, key downward targets will be the 50-day SMA at 96.16. 

The trade: Buy Light Sweet Crude at 98.00 with a stop loss at 97.50 and a take profit at 99.25.  The Risk/Reward Ratio is 1: 2.5

Edward J. Moya

Technical Strategist

WorldWideMarkets Online Trading


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