The West Texas Intermediate Crude Oil market initially rallied on Tuesday but gave bank gains yet again as we continue to see plenty of volatility. Oil is a bit of a mess right now because there are a lot of different crosscurrents affecting it. The first on is the fact that we spent so much time not drawing it during the pandemic, so it’s likely that we will see significant buying pressure underneath.
On the other hand, we also have to worry about demand destruction, and that could have a lot to do with where we go next. Because of this, I think we need to pay close attention to the $115 level, as it was the top of a major ascending triangle that we broke out of. That has to hold for the longer-term structure to look good. If we do find buyers in that area, I think it would be a good sign as it would give us an opportunity to pick up a little bit of value along the way. The 50-day EMA sits just underneath, and it is rising, and I think it will probably come into play near the $115 level as well.
On the other hand, if we were to take out the $125 level above, that could send this market much higher, breaking above the $130 level. In that scenario, the market is more likely than not going to continue to rocket to the upside but we are a little stretched so a pullback should only offer plenty of value.
Now that we are pulling back a bit, I anticipate that there should be some value hunting sooner or later, but part of this might be problems due to a lack of confidence in anything right now, as we have seen a lot of “risk behavior” recently. Nonetheless, I do not have any interest in shorting this market anytime soon, and I think it is probably only a matter of time before we visit the highs yet again. I would anticipate a lot of volatility, but quite frankly I could tell you that about almost any market that I cover. Volatility continues to be the biggest factor, so keep your position sizing reasonable and consistent.
