It’s been “chop city” this week on the daily April West Texas Intermediate crude oil chart, but the weekly chart continues to look orderly. There also continues to be a clash between the fundamental traders. Although recent government and exchange data shows a record number of long positions being held by hedge and commodity funds, the price action seems to be suggesting that an equal number of traders are bullish and bearish.
Despite crude oil and gasoline stockpiles sitting at near record highs and U.S. production seemingly increasing weekly, the funds continue to bet on the long side, or that the OPEC or non-OPEC member deal to curtail production, trim the global supply and stabilize prices will win over the long run.
Even the news this week about increased U.S. exports failed to draw enough sellers to drive prices back to their recent lows. The new export numbers this week clearly indicate that U.S. producers are filling the void in the Asian markets left by the OPEC countries complying with their pledge to the cut output. On the surface, this seems to indicate that the OPEC plan is having little or no effect on global supply, however, prices still remain near the top of the trading range.
While the weekly chart pattern, indicates the April WTI market is at a standstill, looking beyond the prices, it also indicates impending volatility. In other words, this market can’t continue to straddle a key retracement zone much longer because something has to give sooner or later.
The weekly chart has clearly identified the line in the sand for traders, however, the trigger or the catalyst behind the next move appears to be the unknown and this makes timing the move difficult. It’s almost as if even as technical traders, we have to stay glued to the news because the next major story that breaks may be the one that triggers the breakout or the breakdown.
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The main trend is up according to the weekly swing chart. However, this chart also indicates that the momentum is to the downside.
A move through $56.92 will signal a resumption of the uptrend while a trade through $51.86 will indicate the selling pressure is increasing.
The market is also being controlled by a pair of retracement zones.
The main range is $45.18 to $56.92. Its retracement zone at $51.05 to $49.66 is the primary downside target. It also represents a value area.
The short-term range is $56.92 to $51.86. Its retracement zone is $54.39 to $54.99. This zone has been providing resistance the last two weeks. It is also the zone that will determine the near-term direction of the market.
Since the hedge funds are loaded on the long side, we’re going to say there is a strong upside bias. This will be confirmed on a sustained move over the Fibonacci level at $54.99. A sustained move means that once buyers decide to breakout over this price, they never look back.
If they can take out $54.99 and establish support at this price then this could generate the upside momentum needed to challenge the high for the year at $56.92.
On the flip-side, the inability to overtake $54.99 will indicate that enough sellers are coming in to stop the rally, or that the hedge funds are not interested in buying strength to add to their already massive positions.
If the selling is strong enough to sustain a move under the 50% level at $54.39 then this will indicate the selling is getting stronger. If the selling is strong enough then we could even see a retest of the recent low at $51.86.
At this time, we know the resistance area that is jamming up the market, but we don’t know the catalyst that will either launch the next breakout rally, or fuel the start of a liquidation break. Keep in mind that the hedge funds follow “The Herd Theory” so if one starts to sell, they’ll all start to sell and this could lead to a sharp break.