April Crude Oil futures had a strong week, having posted as much as a 7.5 percent gain. The weekly chart looks smooth and range bound, but the daily chart is reflecting a tremendous amount of volatility. The price action on the weekly chart indicates that a bottom may have been established and that a support base may be forming. The daily chart shows that traders are reacting to the news about a possible production freeze with very little focus on the long-term picture.
The range trade on the weekly chart and the base-building process may actually be a good thing. There's an old saying among chart-watchers that "The height of the market is determined by the length of the base". So if investors want to hold this market in a range over the near-term then this could be helpful for the bullish traders over the long-run.
If you like trading action then the daily chart is the place to be. Its price action suggests traders have become more reactive rather than proactive. The lure of quick short-term profits make this type of trading attractive to traders. It will work as long as traders want to react to the news and if the news basically stays the same.
Everyone seems to know the current story - buy when the headline is about a deal to cut output and sell when the headline says the deal has fizzled. At some point, however, the news driving the market is going to change and this is when short-term trading will get difficult. Always remember that someone will know the…
April Crude Oil futures had a strong week, having posted as much as a 7.5 percent gain. The weekly chart looks smooth and range bound, but the daily chart is reflecting a tremendous amount of volatility. The price action on the weekly chart indicates that a bottom may have been established and that a support base may be forming. The daily chart shows that traders are reacting to the news about a possible production freeze with very little focus on the long-term picture.
The range trade on the weekly chart and the base-building process may actually be a good thing. There's an old saying among chart-watchers that "The height of the market is determined by the length of the base". So if investors want to hold this market in a range over the near-term then this could be helpful for the bullish traders over the long-run.
If you like trading action then the daily chart is the place to be. Its price action suggests traders have become more reactive rather than proactive. The lure of quick short-term profits make this type of trading attractive to traders. It will work as long as traders want to react to the news and if the news basically stays the same.
Everyone seems to know the current story - buy when the headline is about a deal to cut output and sell when the headline says the deal has fizzled. At some point, however, the news driving the market is going to change and this is when short-term trading will get difficult. Always remember that someone will know the news before you do.
Thursday was one of those days. Early in the session, April Crude Oil futures were up almost 3 percent after it was reported that Iran had welcomed plans by Russia and Saudi Arabia to freeze output. The rally took place despite warnings that an output freeze was unlikely to reduce the global surplus. This was perceived by traders as bullish news.
Despite the bullish news about the output freeze, the market still sold off from its high after the Energy Information Administration reported crude inventories rose by 2.1 million barrels in the week-ending February 12. Analysts had expected an increase of 3.9 million barrels.
An increase in inventory that is less than the estimate is sometimes followed by a rally, but Thursday's report was completely different from the American Petroleum Institute's report released late Wednesday. That report showed that U.S. crude stocks unexpectedly fell by 3.3 million barrels last week.
If a deal is reached between OPEC and Non-OPEC countries to freeze production at January's levels then we could see a solid support base begin to form. However, we're not likely to see a rally from the base until we see how U.S. producers respond to the deal. And if this is the case then we're going to need to get the API and the EIA on the same page. OPEC may be doing its part to stabilize oil prices, but we're still going to face a choppy, two-sided trade on the daily chart if the industry and the government can't agree whether inventories went up or down.
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Technically, the main trend is down according to the weekly chart. The main range is $51.25 to $28.74. Its retracement zone is $40.00 to $42.65. Should there be a rally then this zone will become the primary upside target.
The short-term range is $36.28 to $28.74. Its 50 percent level at $32.51 is likely to act like a pivot over the near-term if the market stays in this range.
A sustained move over $32.51 will indicate the presence of buyers. This may create enough upside momentum to challenge the downtrending angle at $35.28 the week-ending February 26. Crossing to the strong side of this angle will indicate the buying is getting stronger.
If buyers begin to support the market over $35.28 then look for them to go after $36.28. A trade through this level will turn the minor trend up on the weekly chart. This could trigger an acceleration into $40.00.
That's the technical blueprint on the weekly chart if the bottom at $28.74 holds as support. If it fails then it's back to the drawing board.
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Short-term, daily chart traders should note the zig-zag chart pattern. This indicates that traders are buying on the dips when the news is good and selling on the rallies when it is bad. Keep in mind that those making the news are also trading the market. This chart pattern could be representative of a huge accumulation pattern.
In order to turn this bearish pattern to bullish, traders have to start making higher-top and higher-bottoms. A trade through the main tops at $35.08 and especially $36.28 will indicate a change in trend to up and a serious shift in investor sentiment.
If the buying isn't strong enough to take out the tops then look for more sideways action probably between the two 50 percent levels at $32.51 and $34.62.
If the news continues to flip-flop between bullish and bearish then the zig-zag pattern will continue. If there is going to be a prolonged up move then buyers are going to have to latch on to one story and stay with it until it changes.
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