Why I am a $65 bear in Crude Oil

The charts could be an accident waiting to happen

The monthly and weekly Crude Oil charts have been forming a 9-month triangle within a 3+ year triangle. This price behavior represents a tremendous amount of compression that will at some point be released.

Of great significance, in my opinion, was the upward price thrust in mid-June that completeed an inverted H&S and the smaller symmetrical triangle. This upward breakout has now proven to be a classic bull trap.

Targets are the lower boundary of the smaller triangle at 86.70, the lower boundary of the bigger triangle at 81.72, the target of the smaller triangle at 72.89 (assumed the completion of the smaller triangle) and the target of the larger triangle at 59.50 (let’s call it 65.00).

But, you might say, this kind of drop is impossible because producers must make money. Who says?? Markets in supply surplus (such as energy at the present time) tend to go the production price of the most efficient producers. Plus, which one of you macro economic fundamental experts predicted Crude could drop from $148 in mid 2008 to below $40 in just six months.  Don’t you all raise your hands at once! So take your pet macro economic/fundamental scenario and burn it with the trash!

Disclaimers and caveats: I am short Crude Oil futures and will be stopped out if the market makes a new high. I am looking to add. Decisive closes below 85.90 and then below 77.25 are required to confirm a target of $65.

$CL_F, $USO