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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Expect Oil Traders To Take Profits Before The Dust Settles

Expect Oil Traders To Take Profits Before The Dust Settles

Crude oil prices rose this week on worries about more supply outages from Nigeria’s main crude oil terminal. This is a short-term event that could be settled this week. This would shift the emphasis to the main concern for traders at this time – the stronger U.S. Dollar.

The dollar rallied this week to its highest level since March 29 as growing expectations that the U.S. Federal Reserve may raise rates next month prompted money managers and fund investors to cash out of long positions.

After reaching its highest level for the year, crude oil tumbled following the release of the Fed’s April policy meeting minutes that fed expectations of a June rate hike. On Thursday, New York Fed President William Dudley said the central bank was on track for a June or July rate hike.

Sellers came in on the news because of uncertainty, which tends to encourage investors to book profits until the dust settles. At this time, the fear is the stronger dollar will curtail demand from foreign traders because crude oil is a dollar-denominated commodity.

If the dollar continues to rise then crude oil prices will have to be adjusted to meet this change in the fundamentals. This could lead to the formation of a short-term top and a meaningful correction, but not a necessarily a change in trend. Traders should start to prepare for a change in the fundamentals especially since price and time suggest the market is in a good position to top out.

(Click to enlarge)

Technically, July Crude Oil’s main trend is up according to the daily swing chart. The trend will turn down on a trade through $37.50 so it’s safe to say the trend won’t be turning down next week unless the market breaks over $12.00.

This week is the 7th week up from the recent bottom at $37.50. Closing price reversal tops tend to occur between 7 to 10 weeks from a main bottom. So from a timing perspective, we have entered the “window of time” for a closing price reversal top. To non-technical traders, this means the market could make a higher-high, lower-close the week’s ending May 27 to June 17.

A closing price reversal top doesn’t mean the main trend is getting ready to turn, but if confirmed, it could lead to the start of a 2 to 3 week break equal to at least 50% of the last rally.

The main range is $64.00 to $31.61. Its retracement zone is $47.79 to $51.63. This zone is a very important retracement…




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