Chartwhiz Weekly Crude Oil Report: 5.4.10 (USO)

Crude prices gained for a second straight week last week bolstered by a basket of bullish factors including the Fed’s rate decision, a weaker dollar, positive GDP and concerns of the effects of the oil spill. Crude oil reached a three-week high at $86.50 before closing the week and month out at $86.15 with gains of 1.2% on the week and 2.8% for the month of April.

Prices were driven down to a low at $81.30 on bearish factors seen earlier in the week including fears of a spreading euro-zone debt crisis spurred by rating downgrades of Portugal and Greece, larger-than-expected builds in crude stockpiles of 5.4 million barrels according to the API and 1.96 million barrels according to the EIA, and on technical resistance around the $85.00/barrel mark.

Technical Outlook

As we begin a new month, the market is in both 3-month and 4-month uptrend channels which cross at $83.00 and $86.00 respectively within the long term 16-month Bull trend from the 2009 lows. These two shorter term trends will be key benchmarks throughout the month of May. The weekly chart shows the market in a 14-week uptrend which crosses at $82.50, adding wood to the 3-month uptrend line.

Interestingly, the tops of the 3 and 4-month uptrend channels intersect at the $89.50 to 90.50 range which coincides with the 50% retracement value of the 2008 bear market at $89.85, the next major objective the Bulls are gunning for.

Bullish Factors:

That said we begin the week on a strong front with last week’s close above $86.00 lifting the market to a new yearly high at $87.15 on Monday. The initial attempt to break out above the prior high at $87.09 failed prompting a slide back to the $86.00 area. Weekly Support from here is placed at $86.00 to $85.00. If the Bulls can successfully defend this support base or maintain settlements above $86.00, we expect higher prices to prevail with the next weekly target at the June contract’s yearly high at $87.60 followed by a thrust into the $88.00 to $90.00 range. With the 50% retracement target at $89.85, the $88.00 to $90.00 range provides an ideal region for Bulls to scale out of positions. Trade that loses momentum inside the $88.00 to $90.00 range alerts for a profit taking turnover developing later in the week, therefore offering decent selling opportunities.

Bearish Factors:

The current daily chart pattern shows a potential double top at the yearly highs of $87.09 to $87.15 set by Monday’s Bearish “Doji” candlestick pattern. The top confirms Resistance set by a Bearish “Evening Star” candle pattern formed the first time $87.09 was posted in early April. This confluence of patterns is definitely something the Bulls should take note of and wait to see how the $85.00 level is treated. Trade and/or settlements below $85.00 are expected to trigger a corrective turnover driving prices into the $84.00 to $82.50. Bears should take a scale out approach in that range and be fully covered ahead of the key 3-month and 14-week uptrend lines at $83.00 to $82.50. A violation of the trend lines on a settlement basis below $82.50 indicates weakness and calls for further declines to last week’s $81.30 low down to the $80.00 level.

Benzinga Recommends that you take a look at the United States Oil Fund (NYSE: USO). The USO is the ETF that tracks crude oil. The United States Oil Fund is down 3.5% today.