After a five-week sell-off, April Crude Oil is showing signs of a potential short-term bottom on the weekly chart. Earlier this week it reached a low of $89.33 before a shift in the fundamentals combined with oversold technical conditions triggered the start of a rally.
At the start of the week, technical oscillators and indicators were signaling the presence of oversold conditions. Although the market wasn’t really attracting buyers, it did appear to stop going down. Once it stabilized, the fundamental news kicked in which drove the market higher.
Late in the week, a sharp rise in the Euro triggered a resurgence in demand for higher-yielding assets. Also contributing to the rally was a weaker dollar. Since crude oil is priced in U.S. Dollars, it became less expensive to foreign investors.
After establishing support at $89.33, the market quickly regained a former support angle at $90.92 and a Fibonacci price level at $91.08. Both of these moves were signs of strength.
Sustaining the rally over these levels helped re-establish their importance as support.
If the market continues to rally the week-ending March 15, traders should watch for a test of another retracement level at $92.52. Crossing to the bullish side of this angle is likely to lead to a test of $92.66.
The most important chart pattern to watch for on Friday, March 8 is a closing price reversal bottom. This will form if the market closes over $90.68. This chart pattern is significant because it often leads to the start of a 2 to 3 week rally equal to at least 50% of the previous break.
Based on the short-term break from $98.66 to $89.33, traders should watch for the start of a possible retracement to $94.01 by the week-ending March 22. This move is likely to occur if the EUR/USD continues to rise.
Another key to the expected rally is a weaker U.S. Dollar. Improving economic conditions could also provide support. One factor that could weigh on the upside action is the U.S. mandatory spending cuts. If these cuts begin to fuel a slowdown in the economy then crude oil prices may drop back to $89.33 in anticipation of lower demand.