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The West Texas Intermediate Crude Oil market has broken out of a falling wedge on Tuesday to show signs of life again. By doing so, the market looks very likely to continue rallying, especially considering that we are closing at the very top of the candlestick. However, the real question at this point is whether or not this has any chance of taking off to the upside for an extended move.
Pay attention to global demand
There are some things to pay attention to at the moment that has nothing to do with the charts. The first thing of course is whether or not there is going to be global demand. If the global economy is in fact slowing down, it’s difficult to imagine a scenario where demand for oil is going to pick up. After all, oil is the lifeblood of an economy, and as a result, a slowing economy will demand a lot less of it.
Another thing to think about is whether or not the Iranians are going to sign the nuclear deal because that will throw another 1 million barrels into the market on a daily basis. Furthermore, we also have to pay close attention to Saudi Arabia, which is now talking about cutting back on output, which could have prices could go higher. In other words, there’s a lot of uncertainty out there and therefore I think the only thing you can probably count on is a lot of volatility.
Looking at this chart, from a technical analysis standpoint, the falling wedge suggests that we could go to roughly $101, but we also have the 200 Day EMA sitting just above, and also have the 50 Day EMA dropping below the $100 level and racing toward that 200 Day EMA. That should be quite a bit of technical resistance as well.
- Focus on short-term charts, recognizing that there might be a short-term relief rally.
- There are a lot of issues out there that you need to pay close attention to, so therefore you need to be very cautious with your position sizing.
- Furthermore, pay attention to the US dollar, because if it starts to strengthen that can also work against the value of commodities such as crude oil which of course is priced in that same currency.
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