The dead-cat bounce in November Crude could go as high as 54.45 (see inset), a target that I first broached here a month ago (with a slight adjustment; the original objective was 54.63). I have my doubts the rally will get that far, although mere doubts do not carry nearly the weight of technical indicators at Rick’s Picks. In this case, if the futures are able to push decisively past the midpoint pivot at 49.08 (labeled ‘p’ here), they’d become an odds-on bet to reach a minimum 51.77. Traders could get the jump on any such rally by using a ‘mechanical’ bid at 49.08, but this should be attempted only by those who thoroughly understand the tactic. A tightly stopped short at 51.77 would also be advised, provided you’ve been long on the way to it.
I regard the rally from late August’s lows near $39 as a dead-cat bounce because my long-term price target for crude has been, and still is, $29. A fall to that number would correspond to a catastrophic global deflation, an event that I have been predicting for many years. So why is crude rallying now? I have difficulty imagining it is because of geopolitical tensions. Investors have been completely oblivious to such concerns since the bull market began in March 2009, and I doubt that anything less menacing than a mushroom cloud over the Middle East would spook them. That said, there is probably enough nervousness to goad shorts into covering whenever news from the region turns only mildly scary. Indeed, crude has become extraordinarily sensitive to short-squeeze pressures, since betting against it has been, and continues to be, a no-brainer. The bears are almost certain to be right on this one, but that doesn’t mean they will all make a pile of money effortlessly and without stress. That’s what these rallies are all about: making otherwise ‘easy money’ painful to come by. Under the circumstances, powerful if illogical rallies will continue notwithstanding the growing slack in global supplies and the economic slowdown in China, the crucial consumer of energy at the margin.