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Technical Crude Oil Price Talking Points:

  • The ONE Thing: Crude oil has traced out what appears to be the first impulsive rebound from the December 24th low. Traders will look for $50/bbl to hold as support before another rally higher potentially unfolds.
  • Elliott Wave theory posits that counter-trend rallies develop in three waves. The December 26-January 21 appears to be one wave, with a current corrective move unfolding that may precede another move higher toward the lower $60/bbl region.
  • US Dollar weakness is becoming a developing theme worth watching, and if it unfolds with aggressive US Dollar selling, crude oil could be a key benefactor.
  • The fundamental picture points to less certainty around Venezuelan oil supply after Donald Trump and other world leads officially recognized Venezuela’s National Assembly leader Juan Guaido as President of the OPEC member. However, there are massive amounts of investment in Venezuela by allies, Russia and China that still see Nicolas Maduro as president.
  • Per IG Client Sentiment, Crude Oil positioning from retail traders shows they are chasing downside providing abullish contrarian bias.

You are in luck, DailyFX’s Q1 2019 Crude Oil Forecast was just released

Technical Forecast for USOIL: Neutral

Crude Oil Chart

Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

Crude oil has failed to reignite the animal spirits of the sellers or bears despite growing concerns of global growth forecasts in 2019. Whether traders look at the German or Japanese manufacturing PMI, the worst combined performance in five years or other repercussions of the US-Sino Trade War the crude oil picture remains perplexing.

Looking to the chart, crude oil may well continue higher as it recovers from the 44% drop from October to late December. The current corrective or trend-consolidating move may well lead into another advance as the supply disruptions persist thanks to the upheaval of Venezuelan leadership.

Looking at the WTI chart above, I will continue to focus on you can see that the price is holding above $50/bbl, and the Ichimoku cloud on a four-hour chart. The daily WTI chart above shows that price has moved into prior December opening range resistance near $54/bbl. However, a break above this zone could show that price is set to extend toward the $59-$63 zone, which is a Fibonacci retracement zone of the October to December fall.

Another factor, in addition to Elliott Wave favoring a continuation of the rebound higher and supply shocks from Venezuelan uncertainty, is the US Dollar. Because oil is priced in US Dollars, a stronger dollar tends to put pressure on the price of Oil. However, traders in the interest rate futures market are beginning to doubt the Fed will be able to hike twice in 2019 as they previously mentioned they might, and the macro background could support this doubt further. Should the suspicion of Fed tightening lead to a weaker US Dollar in the weeks and possibly months ahead, that would likely support the price of crude oil even further.

Despite Net-Long Positioning, Crude’s Price May Soon Reverse Higher

IG Client Sentiment

Data source: IG Sentiment

Retail trader data shows 67.9% of US crude oil traders are net-long with the ratio of traders long to short at 2.12 to 1. In fact, traders have remained net-long since Oct 11 when Oil - US Crude traded near 7208.9; price has moved 26.8% lower since then.

The number of traders net-long is 1.3% lower than yesterday and 12.2% lower from last week, while the number of traders net-short is 0.4% higher than yesterday and 2.5% lower 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. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Oil - US Crude price trend may soon reverse higher despite the fact traders remain net-long(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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