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WTI Crude: 100.5 Support Holding Well Despite Bearish Bias

Published 04/08/2014, 02:43 AM
Updated 03/05/2019, 07:15 AM

Crude Oil ended up lower yesterday vs Friday's close, but prices remain broadly supported when placed alongside US stocks where the Nasdaq 100 has just seen the largest 3-day slide in 3 years while the S&P 500 has completely erased daily gains. The decline in WTI compared to equities is definitely much milder, especially since Crude tends to be more volatile historically versus the stock indexes.

That being said, it is not surprising to see WTI prices staying more supported as we already suspected that bulls were more than capable of holding their own, seeing as how the pace of decline was relatively measured early yesterday despite strong bearish fundamental developments (read: Libya). Hence, in our analysis yesterday we pointed out that prices will likely find support around 100.5, which played out to our expectations.

Hourly Chart

WTI Crude Hourly Chart

However, what is not expected is the strong bullish rebound that followed, sending prices all the way up to 101.5 which was then accompanied by a quick push back towards 100.5 once again only to see prices punching back above 100.5 leaving us above 101.0 round figure right now.

In some sense this price action still fits into the price action scenario postulated yesterday, as the overall short-term trend remains biased towards the downside from a technical perspective. Furthermore, long-term fundamentals favor lower WTI prices while the broad risk trend is bearish as well. Therefore, the likelihood of a strong bullish follow-through was always unlikely and it is not surprising to see 101.5 holding firmly.

The key question is what next?

Well, the situation hasn't really changed much from Monday. All the factors mentioned earlier remains the same, and as such it is likely that prices will hit top wedge resistance and push lower once more. Expect 100.5 to provide significant support once more too, which will open up upper wedge as a possible target again.

For those who are doubting the strength of 100.5 may be justified, as a support level that is tested repeatedly has a higher likelihood of breaking eventually. But traders may need to rethink this scenario as there are reports of Hedge Funds buying up Crude Oil yesterday on speculative bets. Hence, should prices drop down to 100.5 once more it is possible that these hedge funds may want to load up more positions again, providing the support needed in the short-term.

Daily Chart

WTI Crude Daily Chart

Nothing much to be said from the Daily Chart though, as current price levels remain fairly similar to yesterday's levels. As such, the same analysis applies - trend can be interpreted as either bullish or bearish depending on whether you are taking the perspective from January's low or the March high respectively. Given the ambiguity, traders should seek strong confirmations before committing, and considering that prices can indeed be highly volatile as seen from yesterday's price action, it pays to be more careful as the chances of fakeouts and whipsaws are high.

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