March Crude Oil futures closed over $100.00 per barrel this week without much fanfare. The rally took out the previous top from December 2013 at $100.79, but fell short of the October 2013 top at $101.81. The failure to breakout to the upside suggests the move through the previous top was generated by buy stops.
The lack of fresh buying on the breakout is understandable since crude oil took a long time to reach this breakout level as well as traveling a great distance from $91.47. Frankly, while traders have to respect the move and its potential impact on prices, speculators do not seem too interested in buying strength unless there is some fundamental reason to chase the market higher.
At this time, there doesn't appear to be a major fundamental reason to continue the rally. However, unless traders wake up next week and see that the bids are gone and that sellers are stepping in, the market may not break either.
Technically, the market is moving higher at a pace of $2.00 per week from the $91.47 bottom. In order to maintain this pace, the market must reach $103.47. If it doesn't trade this level then this would be a sign that upside momentum is slowing. This would be the first sign that buyers are beginning to back away.
The weekly chart indicates there is plenty of room to the downside since the nearest uptrending support angle is at $97.47 this week. A pull-back into this angle while representing nearly a $3.00 sell-off, would be considered…
March Crude Oil futures closed over $100.00 per barrel this week without much fanfare. The rally took out the previous top from December 2013 at $100.79, but fell short of the October 2013 top at $101.81. The failure to breakout to the upside suggests the move through the previous top was generated by buy stops.
The lack of fresh buying on the breakout is understandable since crude oil took a long time to reach this breakout level as well as traveling a great distance from $91.47. Frankly, while traders have to respect the move and its potential impact on prices, speculators do not seem too interested in buying strength unless there is some fundamental reason to chase the market higher.
At this time, there doesn't appear to be a major fundamental reason to continue the rally. However, unless traders wake up next week and see that the bids are gone and that sellers are stepping in, the market may not break either.
Technically, the market is moving higher at a pace of $2.00 per week from the $91.47 bottom. In order to maintain this pace, the market must reach $103.47. If it doesn't trade this level then this would be a sign that upside momentum is slowing. This would be the first sign that buyers are beginning to back away.
The weekly chart indicates there is plenty of room to the downside since the nearest uptrending support angle is at $97.47 this week. A pull-back into this angle while representing nearly a $3.00 sell-off, would be considered normal.
The main range is $104.37 to $91.47. In my opinion, the 50% level of this range at $97.92 is controlling the strength and direction of the market. If buyers can hold crude oil above this "pivot" then further upside action can be anticipated. If it fails as support then look for long traders to pare positions and short-sellers to re-emerge.
One reason why the market is not exploding to the upside is the confusing fundamentals. The sell-off in the dollar should have been bullish for crude oil since it is dollar-denominated, but since the weak dollar is being fueled by so-so economic data, further demand for crude oil may drop. So basically, the two factors are negating each other.
Last Wednesday, crude oil rose on better-than-expected trade data from China. Later that day, the U.S. Energy Information Administration data showed that crude oil inventories rose more than expected. One story drove the market higher, only to have the other story push it back down.
Crude oil prices may linger near the $100.00 level next week, but if a bullish catalyst doesn't appear soon, speculators may decide to put their money to work elsewhere, leading to the start of a sizeable correction. At current price levels, it looks as if traders are waiting for that one U.S. economic report to give them enough clarity to either breakout to the upside or trigger a price adjustment to the downside into a value area.
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