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Is Oil's Rally Already Over?

Last week, I wrote in these pages that I expected a bounce in crude oil. After a dramatic decline since the beginning of the year, WTI futures looked to have finally found a bottom just below $50 and a retracement of some kind looked to be on the cards. Up until yesterday, that looked to be a good call, with the main WTI futures contract, CL, hitting a high just over $54.50 in intraday trading.

Then, as quick as it began, it started to look like the rally had ended.

CL reversed course and dropped back below $53. That has caused me to revisit that call, but there are both technical and fundamental reasons to believe that this is just a normal, temporary retracement and that the upward path will resume soon.

From a technical perspective, anybody who is familiar with the concept of “dojis” won’t be surprised to see oil trading lower this morning. A doji is candlestick on a chart that resembles a cross. It is formed when, after a day of some volatility, the underlying instrument closes at about the same level as it opened. That indicates a battle between buyers and sellers during the day, a battle that in this case, the sellers won.

Dojis are often reversal points following a move, and I suppose that could be the case here, but there are good reasons to believe that isn’t the case.

First, if you look again at the chart and focus on the last week or so, you will see that the move up has not been in a straight line. In…





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