Cacophony in the Oil Market

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"The question in many traders' minds is whether it's a transition to a bull market or to a wait-and-see holding pattern."

There's cacophony in the oil market. That's nothing new, really. In the days when open outcry trading was king, the oil ring was often the noisiest quadrant of the trading floor. Much of today's dissonance rides on the back of electronic messaging: pundits' online remarks and computerized order flow.

Bulls on and off the floor point to signs of bottoming in the crude charts, arguing that the market's defending a WTI spot price in the mid-30s. That's certainly true—so far, at least.

Then there's futures' weakening momentum. Open interest has declined to its lowest level since September. That's not a signal of an imminent bargain-hunter cavalry charge, but it does indicate that deserters are abandoning the bearish cause. It's a war of attrition, some would say.

Closes above $40 would indicate a marshalling of strength in the bullish ranks.

The bears have some noisemakers of their own to lob over the parapets. Large buyers (read: hedge funds and institutional traders) have given up some valuable real estate, they say. The percentage of open interest held long by these accounts is eroding, bolstering the influence of commercial traders. Commercials, in case you haven't noticed, have been notoriously and steadfastly short.

Can you hear the chattering now?

The oil market, not surprisingly, is transitioning after four months of nose-diving. The question in many traders' minds is whether it's a transition to a bull market or to a wait-and-see holding pattern.

Without emphatic good news about economic prospects, oil's upside seems limited. Oil demand has to be spurred by something.

Do you see something on the horizon?

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