(CL) Frothy Sentiment, Possible "Double-Top" Reversal Sour Crude Oil Technicals

Technicals, February 2, 2012; 6:45am

Yesterday afternoon and overnight's clear break below 23-Jan's 97.40 low detailed in the 240-min chart below confirms at least the intermediate-term trend as down and defines yesterday's 99.49 high as the latest corrective high and risk parameter we believe this market's now got to recoup to mitigate the prospect for more significant losses. Overnight's 97.99 high represents an even tighter, micro risk parameter around which some bullish decisions may be able to be conducted. But given this market's volatile behavior over the past month or so, such a tight risk parameter is exposed to whipsaw risk.

Given the prospect for a "double-top" reversal pattern resulting from the market's rejection of the mid-103-handle area shown in the daily chart below, this clear intermediate-term weakness must be respected as a threat to morph into a much broader bearish scenario straight away. 16-Dec's 92.52 low remains a source of support. But it's also the gateway to losses that could be surprising given the lack of virtually any pertinent technical levels between 92.52 and last Oct's 74.95 low.

Adding to this market's downside vulnerability is the combination of:

• an extraordinarily high 89% reading in our MRT Bullish Sentiment Index of hot Managed Money positions reportable to the CFTC
• the market's rejection thus far of the (103.83) 76.4% retrace of 2011's 114.83 - 74.95 decline and
• waning upside momentum on a weekly basis

shown in the weekly log scale chart below.

These issues considered, traders are advised to move to a bearish policy with strength above at least 99.49 required to diffuse this bearish threat. In lieu of such 99.49+ strength, traders should not be surprised by not only lower prices in the period immediately ahead, but possibly accelerated, relentless losses. And given the generally positive correlation this crude oil market has with the equity indexes, it begs the question of what tomorrow's nonfarm payroll report might have in store for stocks.

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