Energy Market Trends with Gary Fakhoury
October 26 , 2007

Crude in Uncharted Territory!
By now everyone’s heard of crude oil’s explosive move higher this week. On Monday, the market was churning around the $85-86 level (still historically very high) but by close of business Friday it had soared almost 10% to nearly $92.
So what now? Is this a blow-off top, as some claim, or the start of a new round of buying?
That’s the question on everyone’s minds. For technicians who look to past price history for clues to future activity, this market obviously presents a problem, since prices have never been this high! Clearly, long-term charts are useless in this case.
But if we keep our timeframe short enough we can glean some clues.
The chart above illustrates the last two week’s action with each price bar representing 15 minutes of price movement during U.S. trading hours. The near vertical move from Wednesday’s low around $85 is very apparent.
But what we want to take special note of here are the gaps in the prices that occurred overnight between U.S. trading sessions. The first gap up occurred after hours of sideways consolidating on Wednesday. But the second gap, the one between Thursday night and Friday’s open, occurred on top of a last-minute surge on Thursday.
So notice what happened after the higher gap open on Friday; prices consolidated once again in a long sideways movement, with a slight decline. Why is this important?
Because gap openings which follow sideways consolidations will usually hold their gains and add to them, while gaps which follow spikes in price usually drift lower if not dramatically reverse.
Why are we going through all this? To help us get a clue to next week’s price action. Friday’s consolidation has actually set up the market for yet another overnight (in this case, over-the-weekend) surge higher. Will this occur? We can’t know for sure, of course, but it’s the most likely course.
Bottom line? Expect higher prices the week of Oct. 29. For my money $100 seems like a near inevitability at this point. After that we’ll just have to reassess.