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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Today’s Trading Could Set Bullish Tone For Oil Next Week

March Crude Oil Analysis

This week starts with March Crude Oil futures in basically the same position as last week. The main trend is down according to the weekly swing chart and the market is rapidly approaching the psychological support level at $25.00.

It is also in a position to test a pair of downtrending Gann angles. Trader reaction to these angles will set the tone of the market. On the upside, the first angle, moving down $0.50 per week from the $41.25 bottom drops in at $30.25. Overcoming this angle will put the market in a strong position and could fuel the start of a short-covering rally.

(Click to enlarge)

A sustained move over $30.25 could create the momentum the market needs to test another downtrending angle at $35.75.

On the downside, the key angle to watch is the steep downtrending angle from the $50.70 top. This angle also moving down $0.50 per week and comes in at $26.70. Holding on the bullish side of this angle will indicate that buyers are starting to come in to support the market. However, crossing to the weak side of the angle will put the market in an extremely bearish position.

If crude oil continues down the path of the downtrending angle then we will get our test of the $25.00 level the week-ending February 5. The angle drops down to $24.70 that week. It’s too early to tell if the market will be coming up to test the angle or coming down.

As far as the week-ending January 22nd is concerned, the market is currently in “the window of time” for a closing price reversal bottom on the weekly chart. This is a bullish chart pattern that often leads to the start of a 2 to 3 week rally. The key number to watch on the close on Friday, January 21 is $30.39. A close over this level could set a bullish tone for next week.

March Natural Gas Analysis

March Natural Gas futures are in a position to end the week in a precarious position. It is currently testing a key retracement zone. Trader reaction to this zone will set the near-term direction of the market.

The main trend is down on the weekly chart, but the recent rally shifted the momentum to the upside. The main range is $3.062 to $1.91. Its retracement zone is $2.486 to $2.622. This zone stopped the rally when the market reached a high at $2.493.

(Click to enlarge)

The short-term range is $1.910 to $2.493. Its retracement zone at $2.202 to $2.133 is currently being tested. This is a key area because buyers are likely to show up in an effort to form a potentially bullish secondary higher bottom while sellers are going to drive the market through this zone in an effort to make $2.493 a new lower top.

In a bear market, the first leg up from the extreme low is usually short-covering. We saw that on the rally from $1.910 to $2.493. The second leg is usually formed by new buying. These buyers are the ones trying to produce a bottom at or near the $2.202 to $2.133 retracement zone.

Holding inside the retracement zone will signal that buyers are winning the battle against the short-sellers.

A sustained move over $2.202 will indicate the presence of strong buying. The first target is an uptrending angle at $2.302. The weekly chart opens up to the upside on a trade over $2.390 with the next target coming in at $2.486 and $2.4930. A trade through $2.493 will turn the main trend to up according to the weekly swing chart.

A sustained move under the Fibonacci level at $2.133 will signal the presence of strong selling. The weekly chart opens up to the downside under this level with potential targets coming in at $2.030 and $1.970. The latter is the last potential support angle before the $1.910 main bottom. A trade through this level will signal a resumption of the downtrend.

The market is under pressure at mid-week because of a bearish U.S. Energy Information Administration report. However, it is still straddling the key retracement zone. This may be buyers who are holding out hope for a bullish cold system to develop.

They may get there wish because a winter storm is set to hit the East Coast of the United States over the next few days. It will be accompanied by a drop in temperatures. If residents are forced to stay home, there may be increased demand for heat. Another broader cold front is expected to hit the Midwest and the East Coast next week. This could also create a supportive scenarios for bullish traders.

Trader reaction to the retracement zone at $2.202 to $2.133 will tell us how much impact the weather is having on the supply/demand situation.

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