The partial shutdown of the U.S. government this week helped drive crude oil prices lower as investors assessed the possible negative impact of this ordeal on the U.S. economy. Expectations are for it to have caused some damage, but the consensus is investors may have built into the price a 2 to 5 day shutdown. If the shutdown continues into next week or beyond, expectations are for increased volatility accompanied by further downside pressure.
Technically, December crude oil is oversold on the daily charts. This could encourage investors to regroup and consolidate while setting up for a reasonable short-covering rally over the near-term.
The short-term range is $109.70 to $100.64. A short-covering rally from current levels could trigger a retracement back to the 50% to 61.8% zone of this range at $105.17 to $106.24. This will be a critical test because investors will have to decide whether to continue to buy for an eventual test of the recent top at $109.70, or start to sell in an effort to create a secondary lower top and the start of another leg down.
The first upside target is a downtrending Gann angle at $103.70, followed by the retracement zone then another Gann angle at $106.70. All of these levels have the capability of stopping a rally with the retracement zone being the best.
As far as a forecast is concerned, there doesn’t seem to be much on the fundamental side of the equation to drive the market higher except for a possible knee-jerk reaction to the end of the government shutdown. This likely means the price activity next week will be driven primarily by technical factors.
To recap, a strong finish on October 4 could trigger an eventual retracement into a zone at $105.17 to $106.24. Counter-trend selling pressure is expected to begin inside this zone.
Swing chart analysis says that a rally inside this zone could eventually mean a correction back to $97.18 or $96.11 over the next five to six weeks. Conventional analysis is still calling for the market to break into a major retracement zone at $97.61 to $94.76. Since the main trend is up on the weekly chart, buyers should support crude oil following a test of this zone.