Crude oil at $100 a barrel? Someone wanted to know whether we were joking when we broached the possibility yesterday in the Rick’s Picks chat room.  From a Hidden Pivot standpoint, prospects over the next few months are not quite that scary, since the highest target I can predict right now with any confidence is a “mere” 88.68.  Significantly higher projections are of course possible, but we prefer to forecast stocks and commodities one target at a time. This helps us anchor our predictions firmly in conservative technical logic, as opposed to simply fabricating pie-in-the-sky numbers that some of our subscribers might be pleased to hear. On that basis, incidentally, Gold has a 40% shot at $907 per ounce over the next 4-5 months, or even $959; however, using Hidden Pivots, there is no empirical basis for asserting that $2,000 gold, or even $1,000 gold, is likely.

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Not so, $100 oil. In fact – again, from a Hidden Pivot perspective – a rally to at least $88.68 would become an odds-on bet were the August contract to close above 69.61 for two consecutive bars on the monthly chart. The futures have already fulfilled half of that requirement, recording a June close of 70.68.  Now, with just a dozen trading days remaining in July, and August Crude currently trading around $74, it appears fairly likely that our criterion will be met.

In the meantime, no matter how high oil goes we can trade it from the long or the short side as opportunity dictates. Counterintuitive as this may sound, it’s a lot tougher to pick risk-averse entry points for getting long than short. That’s simply because “everyone” knows oil is headed higher, and “everyone” therefore would rather be long than short. Oil’s role in preventing “everyone” from getting rich simply by employing a buy-and-hold strategy is to take nasty evasive maneuvers that are so wildly unpredictable as to make a ride on a Brahma bull seem like a snooze on an overstuffed couch in comparison.

Why We Shorted Oil

And so, not wanting to put more than mere pocket change at risk yesterday, that’s why we recommended shorting August crude at 75.03 with a stop-loss as tight as 3-4 cents. As it happened, this micro stop-loss would have been sufficient to hold the position, since the futures spiked to 75.05, just two cents above our number, before staging a 29-cent selloff. One had to be nimble to turn a profit, though, since the pullback lasted for only 35 minutes. There was a payoff besides cash, since the subsequent breach of the targeted resistance provided us with solid evidence that the rally is likely to continue, notwithstanding the $2 dive that occurred after yesterday’s high was in. (Note: Check out Wednesday’s Touts if you’re looking for a way to get long overnight or Wednesday morning that risks relative pocket change in theory.)

So why are oil quotes so buoyant? Some say energy prices are anticipating war in the Middle East. That’s always a possibility, and it could erupt as unexpectedly as the battle between Israel and Hezbollah last summer.  If so, the direct involvement of either Syria or Iran that was lacking last year would easily push crude quotes to levels that would make us nostalgic for the $70 barrel. It would also goose gasoline prices to some threshold above $4 that is bound to test motorists’ ability so far to simply shrug off higher and higher prices.