The West Texas Intermediate Crude oil market initially fell during the trading session on Monday as traders came back to work, but then turned around to show signs of support, forming a hammer. If we can break above the top of the hammer, it is likely to send this market looking towards the $55 level above. On the other hand, if we were to break down below the bottom of the candlestick, it would be a slightly negative sign and could send this market back down to the $50 level. The $50 level is a large, round, psychologically significant figure, and an area that had previously been a bit resistive.
Underneath there, we have the $46 level being supported by the 50-day EMA, and then the $47.50 level offering support as well, based upon structure. I like the idea of buying dips in the short term, but I realize that long term we may have some issues to worry about. Currently, crude oil production is being capped by OPEC, but it is only a matter of time before higher prices will have the Americans flooding the market again. There is somewhat of a concern that perhaps the production in the United States is still going to be thin, but the longer we sit at these elevated prices, the more likely we are to see even more production coming out of America.
At this point, buying the dips will continue to work based upon the whole “reflation trade” idea and the fact that there is plenty of stimulus coming down the road. This will also continue to be a main driver of commodities in general, as the US dollar has gotten a bit hit. We will continue to see “things” make money in the markets. It is not just crude oil; it is also other commodities such as sugar and copper. This is a market that will go looking towards the $55 level above, but I would anticipate a bit of resistance in that area, perhaps even giving way to a possible move towards the $60 level. It is not easy to simply ride the market higher, so I would like the idea of buying short-term pullbacks for short-term gains.