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THE PACIFIC COMMODITY LETTER
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360-289-9441(November 21, 1999) ENERGY COMPLEX: CRUDE OIL--December crude oil rose by 76 cents Friday, almost wiping out completely the 80-cent drop on Thursday and carrying forward the week's rise of more than $2. By all technical measures it was a stellar performance, placed in the perspective of crude's long run since March. Except for a five-week "waffle" back and forth, the rally in oil has been nothing short of spectacular. Some technical measures will give position-holders pause: stochastics are badly overbought and in the 90's, with no place to go but sideways or down; RSI is well over 70 percent in the 9-day mode and close to that "flag" in longer time frames. As might be expected, crossing of 9- and 18-day moving averages shows wide divergence and will be a lagging indicator should a sudden correction come. Direction and momentum indicators are powerfully bullish.
The strong rally Friday is attributed to fund panic buying as they "got out of their shorts": not a pretty picture. Fundamental talk about extending the OPEC cuts was well known before Friday. The end-of-session rally had more to do with a "short squeeze" than any fundamental news. A short squeeze occurs when traders who have gone short during the session feel forced to buy back before the close as the market has rallied. No one is predicting further strength--mostly "taking a breather" or a "holiday rest" or the possibility of "hedging" before the short Wednesday session--in other words, writing off the 4-day trading holiday already. Traders expect January to correct back to $26.00 and possibly lower.
NATURAL GAS--December natural gas continued the correction, in face of relatively mild weather and a build-up in "injections" (inventories). Frankly, demand was down, say cash outlets. December had not been as low as the 2.4's since March (2.390 was hit Friday). Mild weather is forecast for the Northeast and Midwest. A cold front may arrive Monday but it is not considered "major." All this despite gains in crude and other energies. We are going to stabilize and congest very soon. Has been down.
Martin B. Miller