After reaching a high at $98.24, March Crude Oil futures sold-off slightly and consolidated as long traders took a breather ahead of Friday’s U.S. Non-Farm Payrolls report. Despite strong speculative buying, economic fundamentals did play a part in curtailing the rally. On Thursday, the U.S. reported an unexpected drop in fourth-quarter GDP. This created some uncertainty as to how strong the economy actually is, leading to some worry ahead of the jobs data.
The main concern for investors is the speculative buyers. These investors have been driving prices higher on the heels of strong outside markets such as the Euro and global equity markets despite high inventory figures. If demand for higher risk assets drop then the specs are going to have to face the fact that ample supplies could draw the attention of short-sellers. This could force the speculators to pare their positions. This could trigger the start of a near-term correction.
Based on the March 2012 break from the top at $115.22 to the June 2012 bottom at $80.00, a retracement zone was formed at $97.61 to $101.77. The latter or 50% price level was tested this week. Although the market did penetrate this level, it is in a position to close below. This will be a sign of impending weakness.
Since bottoming at $85.40 in November 2012, March crude oil has walked up a trend line on the weekly chart for twelve weeks. The trend line moves up to $98.40 the week-ending February 8. This is the market’s…