The crude oil futures market is set to finish October sharply lower, however, the consolidation chart pattern on the daily chart suggests the market may be oversaturated with short contracts, setting up the market for a potential short-covering rally in early November.
Looking at the monthly crude oil continuous contract chart, one can see that the market is trading slightly below the mid-point of its five year range. The low in 2009 was $63.63, making a range with the May 2011 top at $115.70. The mid-point of this range is $89.67. This price is controlling the direction of the market at this time. Look for a downside bias as long as crude oil remains below this level.
October’s low at $79.03 brought in enough buyers to produce a little short-covering the last two weeks of the month, suggesting oversold conditions. In addition, hedge fund managers and professional buyers may have also been reluctant to sell into a pair of bottoms at $78.75, $74.06 and the main bottom at $63.63.
This selling pressure may come during the first quarter in 2015, but the fundamentals are going to have to reflect a drastic increase in supply or decrease in demand. At this time it seems traders have become comfortable enough with the supply/demand situation to slow down the pace of the selling pressure.
At this time, no one expects a huge recovery in crude oil prices, but there are signs of consolidation taking place on the daily chart. Since the U.S., Russia…