Crude oil futures have been developing a fundamental picture that is more bullish (or less bearish) of late, rallying since the June low of $42.05 to reach a multi-year high of $57.92 last week. This market rally has occurred despite weak seasonal tendencies, and despite the fact that the CFTC’s Commitment of Traders Reports has been showing a near-record overwhelming imbalance of speculative longs.
Since last week’s high, crude began to show some topping signs; and then yesterday, strong liquidation pushed the futures down to the $55.00 level during the overnight trade.
The left-hand chart below provides a macro view of the last year of price action in this market, with each candlestick representing three days. The yellow band highlights a resistance zone at the $54.00 to $55.00 area, which was relevant from December of 2016 through February of 2017.
Now that crude oil has rallied above this resistance and is beginning to turn back lower, this round $55.00 technical and psychological price level is once again important. We will see if that which was resistance will become support, confirming a new bull market.
The right-hand chart below shows a zoomed-in view of crude oil since October, using two-hour candlesticks. The yellow zone represents the same territory on both charts - the $54 to $55 price area. Bulls would need to hold this area to have any hope of a healthy pullback leading back to the highs and then possibly on to the $60.00 level.
Bears must reassume their resistant posture. If the $54.00 to $55.00 area fails, then the next target most likely becomes the $52.00 area at which the support is more modest.
The next area of resistance to the upside, relevant to both bears and bulls, would be the $56.50 to $56.75 range around which price traded before falling this week. This is the area where the upper trendline in blue comes into play, which connects a series of lower highs on the intraday chart.
As a last resort, bears can look for resistance at the green zone from $57.40 to $57.70. This green zone should also be the bulls’ first target if the yellow support region holds.
While the levels noted in this article are relevant for the short term, the yellow zone is also a long-term macro technical area that should be valid for the months to come.
As always, traders should be aware of the United States and global economic calendars, and they should be aware of the political risks that exist. Today’s economic calendar is busy; for crude oil, it features the EIA Petroleum Status Report at 10:30 a.m. EST. Volatility usually surrounds this reports that could take a couple of hours to temper. These reports often lead to violent price action; therefore, traders should understand and manage their risk appropriately ahead of such a report.