Crude has rallied nearly 30% since bottoming near $38 a barrel last month. The short squeeze is being fed by widespread perceptions that prices are going much lower. We think so too, and that is the crux of the problem for bears: ‘everybody’ is eventually going to be right on this one. Even as supply remains strong, demand from China has slackened and could weaken even more if the economy continues to slow. Despite this, a bear rally to as high as 54.63 is possible in the meantime. This is the ‘D’ target of the bullish pattern shown, and it presumably would become an odds-on bet if the secondary pivot (p2) at 51.95 is exceeded by more than 30 or so cents. A pullback to p2 thereafter could conceivably set up a ‘mechanical’ buy, so stay tuned to the chat room if you trade this vehicle and want guidance in real time. The prospect of another strong leg up is entirely speculative at this point, and all bets would be off if the November contract breaches 43.89 to the downside, as almost occurred yesterday. Whatever happens, shorts will continue to bear the very significant risk that an act of terror could send prices skyward overnight. _______ UPDATE (September 27, 12:51 p.m.): Put aside the discussion above for the moment and focus on the 44.66 target shown. It looks to me like a good spot to try tightly-stopped bottom-fishing, and that’s what I am recommending. If this Hidden Pivot is exceeded by more than 21 cents, however, that would imply more slippage to at least p2=43.80
