WTI crude oil has managed to rise mostly as a function of short covering. And whilst it looks set to make a break for $80, a fresh catalyst may be required before we should expect runaway gains.
By :Matt Simpson, Market Analyst
posted an article titled “crude oil looks stretched at its cycle lows” following the close on February 5th, so I’m glad to see it has since risen close to 9% since it was published. Yet there has been some choppy price action over the past 10 trading days as it has effectively bounced between its 200-day EMA and the January high.
This has made crude oil ideal for range-trading, although I do see the potential for at least a run above the January highs and for it to tag $80.
WTI crude oil technical analysis (Daily chart):
Price action does appear to be placing the Jan high / 2023 open zone under pressure for a potential breakout.
- WTI crude has just posted its two best days over the past 11, heading into resistance
- The 200-day average has provided dynamic support multiple times during the past two weeks
- Bullish momentum on the 1-hour timeframe appears to be strong heading into the highs
- Large speculators and managed funds have continued to trim shorts and recently increased longs
However, also take note that daily trading volumes are falling and a bearish RSI (2) divergence if forming, so a breakout and move to $80 might even be a ‘last hurrah’ before price revert back to within the current range. Also note that the rise in recent weeks has mostly been a function of short covering.
WTI crude oil technical analysis and market positioning (weekly chart):
What makes me reserved regarding the potential for runaway gains is that the weekly chart is making hard work of developing a bullish trend. And without a fresh catalyst following a 16% rally from the December lows, perhaps it may struggle to make a break and hold above $80. But that doesn’t mean it can’t give it a good go with a shakeout around these cycle highs first.
WTI crude oil technical analysis (1-hour chart):
A strong rally has formed on the 1-hour chart for WTI crude oil. Prices tested the January high on Tuesday on headlines that OPEC+ were considering extending their oil output cut which prompted concerns of tighter supply.
Prices have since retreated from Tuesday’s high, so we’re looking for evidence of a swing low above the $78 handle / weekly R1 pivot point at $78.18. Bulls could seek dips around or above this potential support zone in anticipation of a break higher and target the resistance zone which includes the weekly R2 pivot, $80 handle and Q2 open.
– Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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