March West Texas Intermediate crude oil futures are trading lower shortly before the regular session opening. There was very little follow-through to the downside following yesterday’s potentially bearish closing price reversal top.
The long-term fundamentals are bullish, but short-term, the market may be overbought because of aggressive hedge fund buying. Once they start to sell, we could see a sizable correction.
Although the closing price reversal top often triggers the start of a 2 to 3 day, or 50% correction of the current rally, we may be looking at a delay due to the release of the American Petroleum Institute’s weekly inventories report later today, or tomorrow’s U.S. Energy Information Administration’s weekly report. The hedge funds could be waiting for bearish news before they start selling.
Daily Technical Analysis
The main trend is up according to the daily swing chart. However, the closing price reversal top suggests that momentum may be shifting to the downside.
A trade through $64.74 will negate the chart pattern and signal a resumption of the uptrend.
A move through $63.34 will confirm the closing price reversal top. A move through $62.98 will change the minor trend to down for the first time in a month. This price may be the trigger point for an acceleration to the downside.
The short-term range is $62.98 to $64.74. Its 50% level or pivot is $63.91. This price is controlling the short-term direction of the market. This is followed by a major, long-term 50% level at $64.11.
The main range is $56.07 to $64.74. If the market begins to accelerate to the downside, we could see an eventual move into its retracement zone at $60.41 to $59.38.
Daily Technical Forecast
Based on the early trade, the direction of the crude oil market today is likely to be determined by trader reaction to the resistance cluster formed by the 50% levels at $63.91 to $64.11.
A sustained move under $63.91 will indicate the presence of sellers. A sustained move under $63.34 will indicate the selling is getting stronger. Taking out $62.98 with conviction could trigger an acceleration to the downside with the nearest target an uptrending Gann angle at $61.32. If this angle fails, the market is likely to drop to at least $60.41.
A sustained move over $64.11 will signal the return of buyers. This may generate the upside momentum to challenge or even overtake $64.74.