Crude oil has had a tumultuous few days as the commodity has fallen sharply from just under the $48.00 handle to its current price of $43.74. This has been a relatively sharp correction for a commodity that has typically seen plenty of demand over the summer months. However, this year the US driving season proved to be relatively lacklustre and the oil glut continues to persist into both unrefined and gasoline stocks. Regardless, the commodity appears to have finally found some support and could be preparing to rise in the coming days.
The technical analysis aspects of US oil’s (WTI) daily chart is relatively illuminating and shows price action currently resting near a strong zone of support around the $42.90 mark. In addition, the RSI Oscillator also appears to have reached its turning point as it currently flirts with oversold territory and a zone that has historically brought about some key reversals.
In addition, there is a wedge structure currently in play that is compressing and capping price action’s movements. This is also largely reflected within the various moving average indicators which have largely moderated in a sideways fashion over the past week. Subsequently, the pressure is building as oil’s range continues to tighten leading us to posit which direction a breakout will head.
In fact, there is plenty of mounting technical evidence to suggest that a breakout is likely to be to the upside in the near term. This view is supported by the current support level coinciding with the RSI Oscillator’s near oversold status. Additionally, price action is currently relatively close to the bottom wedge constraint which gives it limited options for any further downside moves.
Subsequently, keep a watch on the black gold over the next few sessions as the commodity is likely to make its decision fairly rapidly. The appearance of a pin bar candle around the $42.90 support zone would be a highly likely predictor of a reversal in progress and could form a savvy entry point. If a rally is confirmed, watch for a relatively quick move back towards the target level of $47.71 and the $49.00 handle in extension.
Ultimately, something big is brewing within the crude oil markets and the next few days are likely to provide plenty of surprises for those looking to play the short side. However, keep a watch on your exposure given the level of US macroeconomic indicators due to print late in the week as there could be some volatility.
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