PBR Near Bullish Inflection Point

Let's take a look at the big picture of Petrobras (PBR), which could be putting in the secondary low of a 3-1/2 year double bottom.

There are multiple technical reasons that suggest PBR is at or very near an important bullish inflection point: First, the June 28 low at 17.27 has the right look of a completed downleg off of the Feb 8 rally peak at 32.60.

Second, the June 28 low also coincided with a higher low in weekly RSI momentum compared to the lower momentum low recorded in May 2012, which was higher than the lowest momentum low recorded in October 2011 (when NYMEX oil hit its low at $74.95).

All of this warns us that selling pressure is waning and that the price structure is vulnerable to an upside squeeze if prices climb above 20.70/90.

Lastly, all of the action since the October 4, 2011 low at 20.76 has the right look of an unconfirmed lower-low that concludes the ENTIRE stair-step decline from the Dec. 2009 high at 53.46. Notice that the most recent low at 17.27 is attempting to build a 6-week base ABOVE its lower channel lines amidst a very positive momentum set up.

To trigger initial bullish signals, PBR must hurdle resistance at 20.00-20.20.

It just so happens that earlier this morning, Brazil announced that it has discovered oil and gas in the Amazon, which is a two-edged sword at the moment -- good for PBR but only if domestic and global demand strengthens. Perhaps my technical work suggests that PBR is cheap now, relative to its asset base, and after a 3-1/2 year bear phase, is starting to discount the next upside phase?