I should have realized how dangerous it was to relax in the horizontalism that I was talking about yesterday. Later that evening the oil price breached the 54 dollar barrier that we had identified as the upper resistance level of that horizontal trend. Does this signal the end of the horizontal period?
At the beginning of April we saw a similar short term upward price movement. It came as some in the market seemed to gather some confidence that we had seen the worst of the economic crisis. A few weeks and some new bad economic news later the prices had fallen again. The upward price movement was just an uptick and not a reversal of the trend from horizontal to bullish.
Reasons cited for this week’s price optimism are similar to what we saw in April: there are people on this planet that are confident that we are on the eve of economic recovery. Maybe it is because people simply got tired of bad economic news. ‘The crisis’ starts to look more and more like yesterday’s news item. But is that enough to counter the avalanche of lower spending power as people get fired? Will it help factories to restore their sales volumes so that they can pay their bills again and launch new projects? What if – in spite of the better than expected Q1 results of financial institutions – the credit crisis rekindles and kills another big financial institution like we saw with Lehman Brothers? What would happen if General Motors went really bankrupt? Then this week’s bullishness will have produced nothing more than ‘an uptick’.
But on the other hand: one of these upticks will be the beginning of the trend reversal. So we better take them seriously. Out of the sofa then, no more horizontalism, time for action!