Crude oil's long-term trend remains bullish

The anticipated demand destruction for crude oil following the disaster in Japan has pushed the price of the commodity close to support levels. This gives oil bulls a few good areas to take long positions.

The long-term trend of the light sweet crude futures contract traded on the Nymex is bullish. It was on a steady uptrend since May of 2010 and finally broke out of its resistance level of $101 two weeks ago. The first level of support mentioned in the article last week of $101 was broken. Prices are now close to the next support level of $95. We would ideally go long at $96 with a stop a little below $95. If we get stopped out of the positions, the next area to go long is at $87.50 as we had mentioned in the previous week’s article.

Remember the original target for crude oil was $112 followed by $125. However, with the fall in the price of crude oil after disaster in Japan, the commodity has created another resistance level at $107. If these three levels are cleared crude oil has a clear path with no major resistance till $140. The strongest factor pushing up the price of crude oil is the easy money supply of the dollar. Other factors such as the West Asia turmoil and the Japanese natural calamity cause spikes in prices, but may not result in sustained rally or sell off. Eventually prices return to their secular trend which in the case of crude is up.

We believe that the loose monetary policy of the Federal Reserve will continue to slowly and steadily push up the price of crude oil as well as other commodities. There are other counter measures such as raising interest rates that countries such as India and China take to damp commodity price increases. These actions tend to have a short-term effect but as long as the printing presses of the Federal Reserve continue to run full steam, commodity prices are expected to continue rising.

Copper
In last week's article we had mentioned that the copper index was forming a bearish head and shoulder's pattern. The pattern was not confirmed as the neckline had not been broken. We mentioned that if the neckline was broken, copper prices could fall further to 454 which was the first support area, followed by 437 and 400.

The neckline and first support area was broken on March 9 and at the time of writing this article on March 15 the index touched 437 and bounced. Copper may continue to have a corrective bounce before it begins its next leg down to the 400 level.

As mentioned in the earlier article, the price of US equities usually follows the price of copper. And as copper fell so did the US equities in the past few days. We would keep an eye on copper to get a sense of where the equity markets are going.

Precious metals
Gold continues to consolidate in the broadening range formation mentioned last week. Silver, however, is correcting and may be a good buy at the support level of $32.

The author is based in Chicago and is the editor of www.capturetrends.com