CLM12 - Update for May 4th, 2012

Price analysis for the week of May 4th, 2012:

Market Overview: As suggested above, it appears the low volume bull run into the May Day holiday weekend was a trap. We completed a very well defined 50% retracement of the late winter sell off (back to 106.26) and then promptly collapsed. The sheer violence of the move lower caught even myself off guard. But given the rather noticeable divergence between fundamental data (inventories at historic highs, poor economic data, relative Geo-political stability) and price, it seems logical that price would catch up at some point. Given too the seasonal nature of commodity demand, it should not surprise us to see a top form once comfortably in the month of May.

Trading Strategy (1 week): My inclination is to be looking for a bottom to form over the coming days. $100/barrel should act as a bit of a magnet for price over the coming sessions. Should we indeed bottom, I would be expecting al bounce back to the 50% level of this sell off (101.97). Having said that, prices have yet to bottom so the trend continues to be down over the short term. Should 97.51 be breached, shorts would once again be warranted but downside expectations ought to be limited given how far we have come in such a short time.

Trading Strategy (1 month) The seasonal top I was expecting to form through the spring has maybe come a week or two early this year. Regardless, downside pressure shall persist for a while and given CRI's 1st two weeks of Q2'12 Study, one shouldn't be expecting outperformance from commodities in general and energy specifically through the rest of the quarter. The final piece of the bearish puzzle will be this week's CoT report which I will be watching for a change in both the Commercial's & Institution's positions to confirm my seasonal top hypothesis.

Sell in May and walk away...

That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
http://www.therationalinvestor.ca