The West Texas Intermediate Crude Oil market has rallied rather significantly during the trading session on Thursday to test the bottom of the previous trendline. We had been in a positive channel, and therefore now that we are approaching the bottom of the trendline suggested there should be a certain amount of “market memory” in this area, not to mention the fact that the $105 level is right in that area.
Underneath, we have the 200 Day EMA that was tested during the previous trading session, right around the $95 level. The market is paying close attention to the $95 level, as it could open up a massive drop from there. If we were to break down below the $95 level, then it allows the possibility of a major selloff. On the other hand, if we were to break above the $105 level, it’s likely that we could go to the $110 level, which is right around the 50 Day EMA. Ultimately, one thing that I am paying close attention to is the fact that we have seen a lot of significant noise over the last couple of weeks, as we have seen a lot of large red candlesticks. That typically means that there is more aggression to the downside than the up, so it makes quite a bit of sense we would see further selling.
Ultimately, if we did break above the $110 level, that would be a huge change in attitude. People are starting to worry about the recession more than anything else, which will cause a lot of demand destruction when it comes to oil. That being said, the market is likely to continue to see follow-through given enough time. The overall attitude of the market is one that is going to have to pay close attention to not only recession but the possibility that we have not been drilling for a couple of years, so supply is a bit out of whack as well.
I think the only thing you can count on in this market is probably going to be a lot of noisy behavior, therefore I think position sizing will be crucial. As long as you keep your position size relatively reasonable, you be able to navigate this market. That being said, it is worth noting that we did not break above the uptrend line.
