Crude Oil Outlook
Crude oil futures began the week in a position to rally based on the technical chart pattern formed the weak-ending January 16, however, there was no follow-through move to confirm the potentially bullish pattern. This is a good indication the market is in the hands of strong sellers.
When dealing with technical chart patterns and especially those that go against the dominant trend, the follow-through or confirmation move is the key. Without it, the move is just a guess and quite risky since it is usually in the opposite direction of the main trend and against the fundamentals.
The case for a follow-through to the upside was weak to begin with. The fundamentals hadn’t changed. The supply and demand situation was still bearish, but hedge and commodity fund managers were beginning to show interest in the long side which slowed down the rate of descent and actually produced a signal that could’ve generated a $20 retracement to the upside without a signal change in the fundamental supply/demand situation.
Outside events were largely behind the formation of the chart pattern. On January 15, the Swiss National Bank announced the lifting of the Swiss Franc’s four-year peg against the Euro. The created a volatile situation in the financial markets that could’ve had a spillover effect on the commodity markets – namely crude oil futures.
Several hedge and commodity funds were caught in the financial turmoil…