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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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What Happens To Oil If Shorts Surrender

This week, we’re going to focus on the technical chart pattern since the fundamentals have been beaten to death. By now we should all know that the world is oversupplied with oil and that a production “freeze” meeting is going to take place on April 17. But what if we get a surprise and OPEC and Non-OPEC countries decide to announce a significant reduction in output? Taking a look at the charts while we wait for the meeting to take place, we are envisioning the following scenarios.

(Click to enlarge)

Technically, the main trend is still down according to our swing chart indicator for the May Crude Oil contract. However, this week’s lower-low helped make $42.49 a new swing top. This is significant because the previous swing top was $51.63.

Taking out the swing top at $42.49 will turn the main trend to up. Since the week-ending November 6, short-sellers have kept their protective stops above $51.63. After this week, they will move their buy stops down from this level to just above the new swing top. Based on the current price of $38.58, we are now about $4.00 away from changing the main trend to up.

Short-sellers should heed this advice and not get so comfortable that you forget to move your buy stop orders. The move through $42.49 could trigger an acceleration to the upside that will cost you significantly if you don’t use stops as protection.

Going into the new week, the nearest resistance is a price cluster…

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