Saturday, February 26, 2011

Where are Oil prices headed????

Is what I have been asked quite a few times this week. With all the news coming out of the middle east, a fundamental shift pushed fair value of Oil prices above the $100 level for the first time since Mid 2008. So where do we go from here?

The chart above shows a weekly chart of Oil futures continuous contract over the last couple of years. The retracement levels above show resistance, below are dynamic support. In the near term (within next 2-3 years) I am leaning on the above levels to act as resistance to take us back into at least the 50% retrace level long setup coming in at the $65 - $60 level with a chance of even falling into the $50 price level.

While there is a chance of going up to test the $120 price level to attract sellers, I see that as a remote possibility as of right now. The action in the USD dollar this week tells me that the concern level is really not there at this point in time at least.

To be clear though I do think commodities in this environment are an excellent choice for the long haul. But these have all had quite the run in the last few years and to establish new positions at these price levels is extremely risky. Wait for the market to come back to you.