FSU Editorial:PROBABLE INTERMEDIATE-TERM TOP IN CRUDE OIL by James West on 05/22/06

PROBABLE INTERMEDIATE-TERM TOP IN CRUDE OIL
by James West
buythebottom.com
forever a student of the markets
May 22, 2006

Crude
In the near term, this market is setup to decline further as commercials were very aggressive sellers over the last 2 � 3 months. I will be looking very closely to see if there is a surge in commercial buying over the next 1 � 2 months. If commercials do become aggressive buyers, then we can expect a strong rally in crude to immediately follow the current correction as we enter the summer season. This is what I suspect is going to happen, but I will stand down and wait for the COT (commitments of traders) data to confirm this before initiating any positions on my part.

The extent of the decline

Look for oil to hold at or near its 200 day moving average if we get the probable pullback. Currently the 200 day moving average for light crude is at the $64 range. A decisive break below the 200 day moving average followed by a continued decline could possibly mean a longer-term top. I do not expect anything of this sort to happen, but one must always consider all of the possibilities. COT data over the next 1 - 2 months will be critical to understanding the makeup of this market and where it’s headed to next. Stay tuned, and keep checking the weekly charts on the site � buythebottom.com under the �COT CHARTS� link.

(The primary reason I am bullish on oil, is simply because oil is currently in a longer-term uptrend. Let the trend be your friend, don't fight it, just go along for the ride! And only when the trend turns down is it time to let the bear out of hibernation not a moment sooner.)

CRUDE OIL

- From the chart, commercials are net sellers. However, just recently there seems to be a small spur in commercial buying interest. (Yellow line chart bounced up ever so slightly; does this mark the beginning of a new uptrend or in other words commercial buying?)

- Here is what may happen next:
� If oil rallies and commercial selling continues, then a potentially severe correction is imminent. Going long in this hypothetical case is not advisable.
� If oil rallies and commercials become aggressive buyers, then the summer rally has begun. BUY! BUY! BUY!!!
� If oil declines and commercial selling continues, then I would fear a longer-term top in crude oil. SELL! SELL! SELL!!!
� If oil declines and commercial buying interest gradually increases, then this market would be getting setup for a summer rally with a potential target from $75 to $85 or higher. This is the most probable case scenario; but again, don't get ahead of the market: let the market tell you which way to turn, never vice versa.
WAIT, WAIT, WAIT�BUY! BUY! BUY!!!

Charts from last week
In my last week�s article I posted COT charts for the broad markets.

I was expecting the downtrend in the yellow line or commercial selling to stop and turn back up, implying a pick up in commercial buying interest in the broad markets. We did not get that, in fact commercial selling continued. However that data released only goes up to May 16th, so the data is missing two trading days in which the market declined; were commercials buyers in that time frame or sellers? We have to wait till next week�s data to find out.

Updated Charts
Once again all updated COT charts are on the buythebottom.com website, under the link �COT CHARTS�. So far I have COT charts for the S&P 500, Russell 2000, Dow Jones, Nasdaq-100 and crude oil. This list as well as the website will - hopefully � continue to expand over the near future.

Cheers,
James W

Contact Information
James West
www.buythebottom.com
Toronto, Ontario, Canada
Email: westjam @ gmail.com (Remove the space before and after @ when sending your email)