Oil bull trend about to resume?
Let’s look at the daily chart below for those inclined to take a chance on the long side around here for possible near term targets. $93 and $98 look to be realistic resistance levels being the area of the 10 and 40 week moving averages, further, we think that $100 on the Nymex (not Brent) will likely prove a relatively difficult psychological hurdle to crack.
As for an optimum entry point, just above the 7 day moving average (green line) looks to be a good level for a continuation swing long with a break back below $82 likely signalling further weakness and a breach of the recent lows and so a potential cue to get short remember in bear markets, instruments stay oversold for much longer than you would believe and the roll over of the 10 and 40 week moving averages are certainly worrying.
Nymex Light crude weekly chart Another interesting situation to us is the current premium of Brent Crude over the Nymex contract currently sitting at around a $16 per barrel premium and which is towards the upper end of the scale over the last 2 years. For many years Brent actually traded at an average $2 - $3 discount to Nymex and many wonder if this will revert at some point. I personally played this ‘spread’ around 18 months ago and took a tub thumping loss as it was ‘squeezed’ (manipulated, it turns out, through revelations some months later; the finger being pointed at the Vampire Squid - Goldmans) from around this level to $24 at the peaks - the largest in history.
The spread has come out again in recent weeks and, for those of a more risk measured leaning, a partial hedge through selling perhaps 50% of an outright long position in Nymex v Brent is a good way to mitigate this risk.
July 2012 | www.financial-spread-betting.com | 103