Crude Oil Signal: Continues to Levitate at Highs

The West Texas Intermediate (WTI) crude oil market saw little action during Tuesday's trading session, following Monday's over 5% gap up, which is a bullish sign. Traders continue to pay close attention to the 200-Day EMA for technical signals, and its placement at the top of the previous consolidation, around the $82 level, could play a significant role in the market's movement.

However, there is a massive gap underneath that could potentially be filled soon. The 50-Day EMA is currently sitting at the $75.44 level and rising, which is at the bottom of the gap. It is worth noting that gaps in futures markets tend to get filled given enough time, so a short-term pullback could be expected. If the market does experience a pullback followed by a bounce, it could be a very bullish sign.

Despite the market's recent bullish momentum, OPEC's surprise production cut suggests that there are concerns regarding future demand, which could lead to a more cautious approach among traders going forward. After all, what is it that those oil ministers are seeing that the rest of the market isn’t? This is an important question going forward. Gaps almost always get filled given enough time, and futures traders are aware of this.

Be Cautious

• Meanwhile, Brent crude oil has been relatively bullish during Tuesday's trading session, reaching the highs of Monday's session. However, the 200-Day EMA currently sits just above the $87 level and is dropping, which could cause significant resistance.
• If the market experiences a pullback, it could go looking toward the 50-Day EMA and possibly fill the gap.
• A pullback followed by a bounce at the bottom of the gap could be a bullish sign, while a breakdown below the gap could send the market down to the $75 level.

In general, there are many questions surrounding whether supply or demand will be the primary driver of the market's movement going forward. Traders should be cautious with their position sizing and take into account the potential for significant volatility ahead. While there is potential for a short-term pullback, the massive gap below could provide significant support, and a bounce from there could be very bullish.

Potential signal: On a break below the $79 level, the US Oil market could be sold with the expectation of a gap fill. This would target the $76 area. The stop loss is to be placed above the $81 level.