Technical Crude Oil Price Talking Points:
- The ONE Thing: The crude oil bounce accelerated this week to give crude its best weekly gain in 2yrs. Much of the support has been seen as a global risk rally that began on January 4 when the Fed appeared to change their course on further tightening. However, the question now is whether this risk rally, with crude oil in tow will continue or not.
- The premium of the December 2019 futures crude oil contract to the December 2020 contract has hit a level consistent with prior tops on the move down since Q4 began suggesting that the upside rate of change in crude may slow.
- Per IG Client Sentiment, Crude Oil is setting up to resume its downside bias
- The Technical Picture: Per Andrew’s Pitchfork drawn on the weekly chart (as seen on the chart below,) the price rally is running into broader market resistance while MACD continues to hold a bearish bias.
You’re in luck, DailyFX’s Q1 2019 Crude Oil Forecast Was Just Released. You can access it here
Technical Forecast for USOIL: Neutral
Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT
Here’s a fun stat for the quants out there. Since November, WTI crude oil has seen six moves beyond a three standard deviation move with five lower and one higher registered on December 26. Before November, going back to January 2017, there were zero such moves.
These violent moves speak to the environment that crude and most other risky assets have found themselves within since Q4 began. Adding more to that point, the aggressive moves higher tend not to be a sign of a healthy market despite large gains as the sharpest bullish moves ironically are commonly seen in bear markets.
Supporting points for the crude bounce remain in play though they are weakening.
First, the US Dollar’s precipitous drop slowed this week despite Powell’s comments on Thursday reiterating that the Fed will be patient and prepared with flexible policy.
Second, the spread between the December 2019 and December 2020 WTI crude oil contract has moved above zero (from Contango to backwardation,) which is positive, but the premium amount of the December 2019 contract has failed to move above $0.50/bbl since mid-November. Without a jump in the premium, it is hard to see a positive technical backdrop for crude.
Lastly, global data continues to weigh on the demand outlook. Citi’s Global Economic Surprise Index is at the lowest levels since June.
The December 24 low will likely be a place where bold bull’s or tactical bounce-playing bears will change their view at $42.43/bbl while likely expecting price to reach $55.57/bbl., which is the 38.2% retracement and the January 2017 high.
Bearish Bias Intensifies, Potentially Putting A Ceiling on Crude’s Bounce
Data source: IG Sentiment
Oil - US Crude: Retail trader data shows 70.9% of traders are net-long with the ratio of traders long to short at 2.44 to 1.
In fact, traders have remained net-long since Oct 11 when Oil - US Crude traded near 72.21; price has moved 27.6% lower since then.
The number of traders net-long is 1.3% lower than yesterday and 20.2% lower from last week, while the number of traders net-short is 11.4% lower than yesterday and 31.3% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Oil - US Crude prices may continue to fall(emphasis mine.)
---Written by Tyler Yell, CMT
Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as trading educational resources. Read more of Tyler’s Technical reports via his bio page.
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