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After the punitive prices of gasoline at the pump during the summer of 2008, we basked for a while in more reasonable prices until – surprise! – they began rising again, just in time for the start of the “summer driving season.”

Even so, they are nowhere near as high as they were last summer, but they sting, just the same.

A quick look at Candlestick bar patterns is helpful in the analysis.

Here’s what has been happening: In the natural course of things, the price action in crude oil has been upwardly-“correcting” the dramatic decline from the heights, which began last July.

“Down” has been the operative trend since that time.

Operative trends are always subject to correction; and after an upward correction peters out, prices always end up at a level lower than those which were in effect before the correction began.

This particular correction began in February 2009, and has proceeded in a typical a-b-c, up-down-up pattern which may have exhausted itself at a high of $68.65 per barrel on June 2.

By that reasoning, prices must return to a level below $42.44.

There are several reasons why we think there is a real possibility that crude oil prices have peaked and will now decline.

First, prices corrected upward to a level which is 38.2% of the major decline which began last July.

There’s nothing magic about that number, except that 38.2% is one of the retracement levels at which we customarily see price corrections stopped in their tracks; and as of today prices are in fact declining from yesterday’s high.

Second, the Candlestick pattern of yesterday’s prices was a small “Doji,” in which the total range of prices during the trading day was very tight and, more importantly, the opening price and the closing price were exactly the same: 68.55.

This is very revealing to a Candlestick practitioner, because it reveals “uncertainty” and “indecision.”

It is a strong warning of the real possibility that prices will reverse.

It is very “early in the day,” of course; but so far, the scenario is holding, in that prices opened lower and have trended lower, to 67.20 as of this writing.

On this basis, there is reason to think there is a good likelihood that crude oil prices will continue lower and, by necessary inference, so will the prices at the pump for gasoline, one of crude’s many derivatives.

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Ihab Salloum