Increasing demand for higher risk assets along with the unexpected drop in the past week’s U.S. crude oil inventories helped March crude oil spike higher into a Fibonacci price level. New support is now firmly entrenched at a key 50% price level.
Also contributing to the strength was the news that OPEC left its 2013 global oil demand estimate unchanged while confirming a significant production cut by Saudi Arabia last month. Many traders had been convinced that demand would be lowered due to the possibility of a global recession.
Based on the upside momentum on the March Crude Oil daily chart, the market seems poised to breakout over the Fibonacci price level at $95.70. After showing strength for several weeks following a strong rally from the December low at $86.40, the market took a breather inside of a major retracement zone bounded by $93.81 to $95.70. Now that traders are showing a strong bias to the upside, look for the rally to continue to move higher as long as $93.81 holds as support.
The move to the Fibonacci price level also meant that the October 10 top at $95.21 was taken out. This action served as confirmation that the main trend was up on the daily chart. Since this rally is based on momentum and the next major upside target is the September 14 top at $101.78, the next spike up could stop anywhere since new resistance levels cannot be found. With this type of momentum behind it, a rally of this sort often ends when the weakest short is finally knocked out.
The Nearby Crude Oil weekly chart is also painting a similar bullish picture. Firstly, based on the main range of $102.08 to $84.95, a key retracement zone was formed at $93.52 to $95.54. The market is currently trading inside of this zone with a strong bias to the upside. The current momentum suggests that the upper level of this area is likely to be penetrated over the near-term.
The market is currently following an uptrending Gann angle at $94.95. This angle moves up to $95.95 the week-ending January 25. Additionally, the market also broke through a downtrending Gann angle from the $102.08 top. This week the angle is at $93.08. The week-ending January 25, it moves down to $92.58. Both scenarios are indicating a strong bias to the upside.
If the upside momentum continues into next week and the market can sustain a rally over $95.54, then look for a possible test of $97.33.
The main trend turned up on the nearby weekly chart…