Is The Low For Crude Oil Now In?
Axi | Mar 15, 2017 10:42
Originally published by AxiTrader
Oil fell to $47.07/10 last night when news broke that the Saudis had marginally increased production last month.
It was exactly the type of information that neatly fit the position unwinding and production deal collapse narrative that has gripped the market over the past week or so and seen prices collapse $6 (more than 10%) to last nights low.
But news this morning that the API weekly crude oil stocks had fallen by 531,000 barrels turned the market on its heads as the bears were caught in a trap.
WTI crude is now trading back at $48.48 - more than $1.40, 3%, higher than the overnight low.
That offers the tantalising prospect that crude's price decline might have made a low, at least an interim one.
You can see why I raise that point with reference to the daily chart.
We have a convergence of factors that suggest oil will at least stabilise now.
WTI was stretched in a Bollinger band sense and was outside the bottom of the 2 standard deviation band. In my experience that is a sign the market is a little stretched and will pause. Likewise last night's low penetrated just a little below the 61.8% retracement level of the rally from November 2016.
So when you throw in the fact that the daily pin-bar, in a Japanese candlestick sense, is a hammer we have the preconditions for a bounce back in coming days.
But oil still faces plenty of resistance.
The 200 day moving average sits at $48.69. The trendline from the 2016 lows, which WTI broke down and through in the past week, sits at $48.89. Old support often becomes resistance.
And of course, we have a market that is still very long in a speculative sense.
For the moment though the short term - 4 hour - charts support further gains. $49.60/5 is the 38.2% retracement of the last week's fall.
My expectation is that will cap the rally for now and lower levels will eventually beckon toward $45, perhaps below.
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