The oldest debate in trading and investing is the relative merit of technical versus fundamental analysis. Most technical analyses are, at their heart, about identifying points at which support and resistance have appeared in the past and are likely to appear in the future. That is important information, but any predictions that result are rendered moot by a shift in fundamental conditions. When it comes to commodities such as oil, however, price itself can produce that fundamental shift, so a technical metric that measures momentum shifts can be especially useful in that and related markets.
Recently, even as demand expectations have varied, oil pricing has been dominated by the supply story. Agreed output cuts from OPEC and their partners pushed oil up from its lows but increasing U.S. output halted and reversed that move. The thing is, supply is inherently price-sensitive. Higher prices encourage and enable increased production then, when that comes online, price tends to fall until supply reduction results.
For short-term trading, the time periods can be as short as one minute, but RSI, with a few caveats, has proven very effective in predicting longer-term swing moves in oil over the last few years, using 1-day periods.
Those caveats are important.…