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Talking Points:
- Crude Oil Technical Strategy: Awaiting Affirmed Breakout Before Buying
- Inability To Gain Traction Below $40 May Show Exhaustion
- USD & Supply Inventory Would Likely Align With Price Breakout
Regardless of US Dollar strength, which is inversely correlated to WTI Crude Oil, the price of Oil struggles to push below $40bbl. On Monday, news surfaced that Saudi Arabia was willing to cooperate with Non-OPEC Countries. Translation to the market was that they could potentially stop pumping record volumes that are keeping inventories so high and depressing prices. This was interpreted as bullish news for Oil. Interestingly, this statement came at a time when Oil is appearing to be exhausted on the downside. This view is coming from the fact that Oil has traded within the August 24th range of $37.37-$40.45 for multiple days, but has been unable push substantially lower. This development, or lack thereof, does give bulls hope. However, the US dollar will continue to be a headwind for the bullish view of Oil as it sits supported above the weekly pivot near the 12,150 level.
The $40.00 level provides the first of multiple levels of support in the upper $30s for US Crude Oil. Last week’s candle did close in the black, so we’ll look to see if momentum can build this week . You’ll notice on the chart that the $40 level is known as an equal wave level (c=a in price). Price action around an equal wave can tell technical traders a lot. First and foremost, a move higher off equal wave support can signal that a corrective move is done, and a full retracement could be in store, which would take us above $50bbl. On the other hand, a strong break through an equal wave level, $40.00 on Oil, would argue for an impulsive decline to and likely through the August 24th low of $37.37. Most targets on an extending move lower focus on the lower $30 range to upper $20 range. A bullish development would first be validated on a daily close above $42.76, which was Friday’s high. Further resistance is seen at the Weekly R2 near $44.30, which was also around jereSeptember’s price support.
Momentum is often seen as a leading indicator, and momentum on the downside has all but evaporated on Oil, which is another positive development for the bulls. RSI(5) is showing bullish divergence off of channel support. For now, we’ll focus on price remaining above the weekly pivot and look for further bullish signs to materialize from here. While the credit may be given to the Saudi’s if a rally materializes, it’s good to know there was a strong technical foundation for a move higher before they agreed to “cooperate." T.Y.
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