February Crude Oil futures rallied for a second consecutive week, however, the weak follow-through to the upside indicates that the move was most likely triggered by short-covering rather than new buying. In addition, technical factors played a role in stopping the rally as well as skepticism over the latest supply and demand data.
Technically, the market did all that it was expected to do after reaching a major retracement zone on the weekly chart at $95.90 to $93.46 and reaching oversold levels on most oscillator and indicator charts. The subsequent reversal to the upside was triggered by short-covering after commodity funds had built up huge positions and the market ran out of sellers.
Based on the break from the late August top at $106.22 to the late November bottom at $92.10, technical analysts were expecting a retracement into $99.16 to $100.83. As of December 11, February crude had reached a high at $98.92, before profit-taking and fresh shorting killed the upside momentum. The market is now setting up for a possible retracement of the rally from $92.10 to $98.92, making $95.51 the next potential downside target.
Also stopping the market was an angle moving down .50 per week from the $106.22 top. This angle stopped the rally at $98.72 the week-ending December 13. It moves down to $98.22 the week-ending December 20.
The first possible support level is an angle at $96.10 the week-ending December 13 and $98.10 the following week. Breaking…