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WTI Crude Oil Price Forecast: Up, Up, And Away

WTI Crude Oil Price Forecast: Up, Up, And Away

Tyler Yell, CMT, Currency Strategist


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Talking Points:

The Equity Rally from March 6, 2009, has been called the most hated market rally in history because so few retail traders took part in the massive rise because many were burned in leverage trade in 2008 that went away. While still young, and in doubt, the ~85% move off the low in WTI Crude Oil (CFD: US Oil) could soon give the amount of hate for the equity rally a run for its money.

Arguments ranging from ‘Oversupply Still Exists’ to ‘Chinese Demand Isn’t Sustainable’ to ‘Wait ‘Til the Real Dollar Rally Begins.' abound. However, either way, you look at it, WTI Crude remains bid.

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Two key things are news worth with today’s move with one potentially much more impactful than the other. First, and less important, Crude Oil rose to a 7-month today and has inched closer to the $50/bbl mark.

What could be more important than a 7-month high, and being closer to the $50? The 200-DMA has risen for the first time since April 2014. Price in relation to the moving averages, and the larger, the better are often a starting point for technical analysis and rightfully so. However, when large moving averages either change the steepness of their slopes or change directions, a major move could be under way.

Given the significance of the 200-DMA, price moving above it in April was significant alone. However, if the MVA Trend is beginning to move higher, that could argue a much larger commodity bull market is beginning to grow roots, strong roots.

Long-Term Trend Resistance Continues To Clear

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The above chart is a long-term price channel via Andrew’s Pitchfork tool with sliding parallels drawn with the slope of the median line off of key pivots. You’ll notice on the bottom-right of the chart; the sliding parallels and median lines have acted as key pivot support zones over the last 6-months. Now, we have seen a break resistance that along with the move higher in the 200-DMA (currently near $40/bbl), our focus turns higher to the October high of $50.90/bbl.

Key Support & Resistance Levels from Here (Visual Map Below)

The Strong Support Zone of $43.00/30 per bbl remains key before switching the view from Bullish to Neutral. A lot of factors would need to align to turn outright bearish again. Given this week’s price action, a shorter-term pivot of the price action of $45.70/bbl is worth keeping on watch. This level sits just above the Weekly S1 Pivot at $45.35 and was a blast off point to this week’s price action. Only a move below there would show that Monday’s and Tuesday’s gains should be corrected. A breakdown below this level would turn short-term focus neutral and toward the Weekly S1 support at $43.85/bbl.

In a healthy bull market, we should hold the S1. If the S1 fails to hold up the price, we could see a strong drop to the S2 & 200-DMA at $41.44/bbl and $38.78/bbl respectively.

This week’s move took us above the November high and should encourage the Bulls. We have cleared many technical hurdles covered in this Technical Analysis of Oil update. Recently, the ability of crude to close above $45/bbl has shown conviction that a move to the lower $50/bbl region may be under way.

Due to the macro environment, I’m staying bullish for now. Currently, the October high is the next resistance level in focus is the Weekly R2 pivot at $49.43. Beyond there, the October high of $50.90/bbl may soon be tested. However, this all assumes the US Dollar doesn’t follow suit of May 2015.

Contrarian System Warns of Further Upside

In addition to the technical focus around Andrew’s Pitchfork, the Polarity Zone holding as support, and the moving averages, we should keep an eye on retail sentiment, which favors more upside price action. Further upside is specifically aligned with our Speculative Sentiment Index or SSI for now.

According to client positions at FXCM, the ratio of long to short positions in the US Oil stands at -2.63 as 28% of traders are long.Long positions are 10.8% higher than yesterday and 25.6% above levels seen last week. Short positions are 2.2% lower than yesterday and 77.1% above levels seen last week. We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are short gives a signal that the USOil may continue higher.

Key Levels Over the Next 48-hrs As of Monday, May 11, 2016


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