Looking at the Commitment of Traders report from Friday, the large-speculator group for oil has been paring back its bullish position since mid-September, and they may have gone too far now.

As of last week, the group has 137,254 contracts held net long. This is the least number of contracts being held net long since early July, right as oil prices were beginning the rally that took it from $85 a barrel to $100 a barrel in September.

Contrary to the large-speculator crowd, the commercial-hedger group is short less than 150,000 contracts for the first time since July.

In addition to the sentiment shifting too far, the technical picture shows that oil was oversold on the weekly charts and just recently saw the stochastic readings make a bullish crossover.

Right now, it looks as though oil is ready to rally again, and the $100 range looks like a good target.

The one potential flaw in this plan is if Congress fails to reach a compromise in the budget talks and the forced tax hikes and spending cuts are enacted.

This action would likely cause the United States to enter another recessionary period and the demand for oil should fall. It is possible that oil could rally for the next few weeks as the budget negotiations continue.