The WTI contract tried to rally during the session on Tuesday, but as you can see formed a little bit of the shooting star in order to show weakness at roughly $107. That being the case, I think that we are looking to grind sideways for the short term, but we need to be getting closer to the point in time where the market breaks down a bit.
If you have been reading these articles, you know that I am actually waiting on a significant selloff as the move has been so parabolic. This could be coming fairly soon, especially as the Federal Reserve chairman speaks in front of Congress in two days. That being the case, it's very likely that he could say something to rattle the value of the US dollar. If that happens, then you can bet your bottom Dollar that the price of oil will certainly be affected.
Runaway freight trains always end poorly
Markets that act like runaway freight trains almost always end in tears for the buyers. The smart money gets in early, gets out in the middle of the move, and simply looks back at the market fall back to earth. Unfortunately, there are plenty of people buying oil up at these prices because they essentially believe that the markets can never fall, which of course they will. If we managed to break down below the $104 level, I think at that point in time we could see a significant selloff down to at least $100, and possibly even as low as $99.
That being said, if this market goes higher I would be very hesitant to be involved. If we continue to climb in price, I'm only going to become that much more convinced of the impending fall. The market certainly is overextended, so even under the healthiest conditions you would expect a little bit of a pullback. The question now is whether or not that will be gradual, or will be sharp and destructive. As things look at the moment, I believe that the latter of the two scenarios is probably the more likely.