Now that June Crude Oil futures have cleared more than a few hurdles on the daily and weekly charts, it's time to take a look at where it stands on the weekly chart to get an idea of its strength and to identify potential resistance areas.
(Click to enlarge)
According to the monthly swing chart, the main trend is still down. However, the three month rally indicates that momentum has shifted to the upside.
The main range is $65.93 to $30.79. Its retracement zone at $48.36 to $52.51 is the primary upside target. A long-term downtrending angle passes through this zone in April at $50.59 and in May at $48.59, making it a valid upside target also.
Since the main trend is down, we expect to see sellers show up on a test of $48.36 to $52.51. The selling could come from new shorts or established longs booking profits.
Bearish traders are going to try to produce a new lower top inside this zone. This is not necessarily a bad thing because in my opinion, the market needs to make one more correction and form a higher bottom in order to solidify its support base.
Buyers are going to try to drive the market through this zone, but this is likely to be triggered by aggressive short-covering rather than new positions. I don't believe that professionals are going to chase this market higher given the fragile supply/demand situation.
If there is a spike move through $52.51, for example, it will probably set up a great shorting opportunity because…
Now that June Crude Oil futures have cleared more than a few hurdles on the daily and weekly charts, it's time to take a look at where it stands on the weekly chart to get an idea of its strength and to identify potential resistance areas.
(Click to enlarge)
According to the monthly swing chart, the main trend is still down. However, the three month rally indicates that momentum has shifted to the upside.
The main range is $65.93 to $30.79. Its retracement zone at $48.36 to $52.51 is the primary upside target. A long-term downtrending angle passes through this zone in April at $50.59 and in May at $48.59, making it a valid upside target also.
Since the main trend is down, we expect to see sellers show up on a test of $48.36 to $52.51. The selling could come from new shorts or established longs booking profits.
Bearish traders are going to try to produce a new lower top inside this zone. This is not necessarily a bad thing because in my opinion, the market needs to make one more correction and form a higher bottom in order to solidify its support base.
Buyers are going to try to drive the market through this zone, but this is likely to be triggered by aggressive short-covering rather than new positions. I don't believe that professionals are going to chase this market higher given the fragile supply/demand situation.
If there is a spike move through $52.51, for example, it will probably set up a great shorting opportunity because the move will likely be caused by short-covering and speculative buying. This type of rally fails most often.
If enough sellers do show up on a test of $48.36 to $52.51 then look for a much needed correction. The first target will be a steep uptrending angle at $46.79. This angle is moving $4.00 per month from the $30.79 main bottom. If it fails to hold as support then look for further pressure to drive the market into the next potential support angle at $38.79.
The angle at $38.79, moving up at a rate of $2.00 per month from the $30.79 main bottom, will be a good place to consider going long since it will be pretty close to a 50% correction of the recent rally and a value zone.
To summarize, according to the chart formation on the June Crude Oil monthly chart, we're going to be looking for a selling/shorting opportunity between $48.36 and $52.51 during May. We'll be looking to buy on a dip back to $46.79, but would really like to see a test of $38.79 because it represents value.
(Click to enlarge)
The weekly swing chart tells us that the main trend is up. The trend recently turned higher when the market traded through the swing top at $43.17.
Our swing chart analysis shows that the first leg of the rally was $30.79 to $43.17, or a rally of $12.38 in 8 weeks.
We are currently finishing the third week from the $36.57 main bottom. If we match the previous rally then we could see a rally to $48.95 by the week-ending June 3. This would put the market a little above the 50% level on the monthly chart at $48.36 and slightly above the long-term downtrending angle at $48.59.
Combining the monthly and weekly charts reveals that we should pay close attention to the price action and order flow between $48.36 and $48.95 in May. Right now it's too early to determine if it is going to stop the market. In other words, it's just a target. Upside momentum and buying could be strong enough to drive right through it so I wouldn't suggest selling a rally into it. However, I would consider selling it on the way down if the rally fails to take out $52.51.
We want to try to maximize our gains during this rally so selling into a rally is not suggested because both the trend and momentum are pointed higher. However, if the market hits resistance between $48.36 and $52.51 and begins to sell-off we would like to go with the shift in momentum and sell a break back through the 50% level at $48.36.
In summary, we believe the June Crude Oil market is nearing a serious resistance area and is ripe for a correction. However, because the buying is so strong, we don't want to step in front of it. However, we will consider playing the short side if the buying stops inside our retracement zone and takes out support on the way back down.
We are looking to sell weakness after the market hits resistance rather than selling strength which is a riskier trade since the upside momentum is so strong.
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