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Talking Points
- US Crude Oil at key technical juncture
- Reaction around January lows should prove pivotal
US Crude Oil – Global Inflection Point?
Several key markets look to be at an important price inflection point this week, as the S&P 500, USD/JPY and Crude have all turned sharply lower from their reaction highs last week. I have been questioning the importance of the rally in each and whether it was the first leg up within a bigger bottoming process or just an oversold bounce before another leg down. How these markets react around their respective January lows should give a lot of insight into the true state of affairs in global markets.
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Crude is arguably the most important chart of the three at the moment as so much negative sentiment is being attributed to it that it has almost become reflexive. Key levels over the next few days look to be the 78.6% retracement of the late January advance near 29.00, the closing low of the year around 28.20 and of course the year-to-date low at 27.53. If the commodity can hold above the latter or even just marginally undercut it we can start talking about a more important base from which a more meaningful recovery can develop. What troubles me is that this potential basing action has occurred just above long-term support between 25.00 and 26.00, which is the 10th square root relationship of the 2008 high and the 88.7% retracement of the 1998 – 2008 advance. Will the market recover meaningfully without first testing this zone? The other issue is timing. Around the first part of March, there is a nice confluence of timing relationships in Crude with the highlight probably being a 17.2-year Armstrong Pi cycle from the late 1990’s low. Another leg down into this window before reversing would be ideal, but three weeks is an eternity in the energy markets and a lot can happen before then. If the market can hold support over the next few days focus will turn to 33.70 as a close above there would signal a more important reversal is already underway.
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--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com
To contact Kristian, e-mail instructor@dailyfx.com. Follow me on Twitter @KKerrFX
