To receive Tyler’s analysis directly via email, please SIGN UP HERE
- Crude Oil Technical Strategy: Starting To Push Lower Off Resistance
- Was the US Dollar Drop Overdone, What is Ahead, Could Heavily Influence Oil
- Sentimental Trading System Warns of Potential Top
Could it happen again? The move higher in WTI Crude Oil, a 61% rally off the February 11 low, has been mind numbing. Quarter after quarter, we have seen arguments about why the price of oil will likely not rise, but over the last month what we have seen the price of oil do, is rise. Unfortunately, for Crude Bulls, we have now come to see the biggest test yet for this move higher, the 200-day moving average. If we make a retest for the February low, it will make a wild market look simpler than it really is.
Learn more about the breakdown of oil production – click here.
Another recent development and one that will likely determine boils next large directional move is that of US dollar strength. The price of WTI crude oil is inversely correlated to the US Dollar and the move higher in crude oil has aligned with the price of US Dollar at the lowest levels since October. However, a few Fed speakers this week have put the attention back on US dollar strength as they talk up multiple rate hikes in 2016. Should this come to fruition or fear of fruition pushing the dollar higher, Crude Oil could quickly see its gains evaporate in the same manner of time that they arose.
The 200-DMA Has Been A Formidable Foe For WTI Crude Oil Since July 2014
To See How FXCM’s Live Clients Are Positioned In FX & Equities Click Here Now.
Amid Ongoing Uncertainty, Is the Crypto Industry Stepping Up? Go to article >>
Key Support Levels from Here
As of Wednesday, 200-day moving average sits below $42 per barrel at $41.76. Given the fortitude of the moving average, there is little resistance outside of this level that matters for now considering the 61% move higher and the obvious respect that the price has paid to the 200-day moving average in the last year.
Therefore, we should spend our attention and time looking at chart support, which is another story altogether. The levels that catch my attention are the recent corrective low and the 38.2% retracement at $35.94/bbl and the 21-day moving average, currently at $36.90 per barrel. Should these levels hold the support, we could soon see a rise that would test and potentially break the 200-day moving average. While not a price support, it is also helpful to watch the RSI (5) support below the chart, because if we break the trendline drawn on the chart above, it would be a sign that shows momentum is falling again.
Contrarian System Warns of Another Push Higher
In addition to the technical focus around the 200-DMA resistance, we should keep an eye on retail sentiment, which is trying to fight the trend. Another push higher would align with our Speculative Sentiment Index or SSI. Our internal readings of US Oil show an SSI reading at -1.94, as 34% of traders are long. We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are short gives a signal that the US Oil may continue higher. The trading crowd has flipped from net-long to net-short recently within the last month. If the reading were to turn further negative, and the price breaks above the 200-DMA resistance, we might well be on our way back to $50/bbl.