Prechter: oil rally to run out of steam

By Haitham Haddadin

NEW YORK (Reuters) - The recent rally in oil prices has limited upside left and will likely run out of steam near $80 a barrel, prominent technical analyst Robert Prechter said on Monday.

"It is very much like the stock market. We are in a temporary bear market rally/rebound in a very large deflationary trend," Prechter, chief executive of Elliott Wave International, told Reuters in a telephone interview during the Reuters Investment Outlook Summit.

Oil has rallied from a low near $32 in December after peaking at $147.27 per barrel in July 2008. On Monday, U.S. crude oil for July fell $1.42 at $70.62 a barrel.

"When it (oil) was down in the $30s I had a target area of $70 to $80. I think we are there," added Prechter, a long-time market bear who is credited with forecasting the 1987 Wall Street crash, and more recently the global financial crisis.

"The cap is $80. It could go beyond that but I certainly would not want to participate beyond that price," he said.

"We have some very strong resistance indicated in the $70s, in the $70 to $80 area based on some very long-term trendlines," Prechter added.

He said that part of his reasoning is based on his view that what the world's largest economy faces is deflation.

"Prices tend to fall in a deflation," Prechter added.

Prechter said that oil's rally above $147 last year likely will not be revisited for a very long time.

"We will not see that for years, if not decades," he added.

"So all of these rallies are bear market rallies; sometimes they overshoot but generally they turn into traps. So as far as I am concerned, the rally we were looking for has pretty much happened," Prechter noted.

Asked about oil's downside scenario, he said: "Ultimately, lower lows. I think we will go below the bottom we saw recently in oil but I would not want to give out any specific numbers."

(Editing by Christian Wiessner)