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April 25th, 2010
Technical observations of

Crude Oil – 16 Months of Strength Warrants Caution

Crude oil has now rallied for sixteen months and is approaching a period of normal seasonal highs. The following chart identifies numerous rallies of similar duration and the subsequent downside breaks in price of 20% to 76% within six months. Excluding the 76% decline in 2008 the average drop was 32%.

Monthly Sequential Sell Setups (modified to 11, 4), as occurred in February, have coincided or preceded half of the highs. A violation of a previous month’s low would become a confirmation of a sell signal. For now that is the March low of $78.06.

The weekly RSI(14) currently sits at 60, a little low for an important top. Levels of 62 to 65 or the 70’s have been the norm. Daily RSI readings around 70 are common at the tops, so be alert for any rally from the current level of 51 up to 70 as a reason to lighten up. If it coincides with a weekly reading in the 70’s then exit all long positions.

April 25th, 2010

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