Crude Oil: Head Fake?

Technicals | Nov 04 2020

Bottom Line 03/11/20

Daily Trend: Down
Weekly Trend: Down
Monthly Trend: Down
Support Levels: $35.19 / $31.55 (Dec 2020 Contract)
Resistance Levels: $41.90 / $44.24

[US$/bbl WTI]
 

Technical Dicussion

Reasons to revert from bearish to neutral:
→ oversupply a major issue yet this may start to improve in a post Covid-19 environment
→ bounce off capitulation low has remained robust to this point
→ Oil price wars between major country producers remain in play

Last night was also a strong session combined with a slight up tick in volume. The pullback to this point though has only retraced Fibonacci 23.6% of the full move off the April lows. So this is extremely shallow for a Wave-2 or B and considered the bare minimum for this type of weakness. Not a problem when markets are strongly bullish. Yet this is a definition that we feel is far too early to be aligning to Crude Oil.’

The Fibonacci numbers never lie ! Since our last review the retracement back then has proven to be too shallow. Yet last night we witnessed a confluence of technical factors that has made us sit up and take notice. Firstly a more acceptable deeper pullback to $33.64 took place intraday last night. A move that traveled just below wave-(a) vs wave-(c) equality circa $34.25. Plus since our last review the wave-(iv) of a lesser degree low aligned to $35.31 was attained. Which is generally the minimum that Wave-2’s of a higher degree pull back to.

We also witnessed a strong key outside reversal day in last night’s trading. Which as a minimum often signals further strength more immediately. Plus price is back to oversold on our divergence indicator. To add some further fuel to the potential bullish fire, volume last night was above average with buyers closing out the session strongly. Far too early to be calling that a significant low is in place, yet things could easily be heading that way over the coming weeks. So called market experts are calling for a major drop in Oil prices if Joe Biden is elected President in this weeks election. Yet our view when it comes to the markets is to always expect the unexpected!

Trading Strategy

We were too early on our last trade with price faking to the upside before weakening again. Yet based on tonight’s analysis, there is certainly scope for experienced aggressive traders to get back on the bike here. So the formal recommendation is to trade long at $37.77 with stops placed at $33.63. It’s not quite a traders trick entry yet it’s pretty close to it. And clearly defined as a low risk high reward play. Conservative traders continue to sit tight for now until price action can prove more comprehensively that it has locked in a major low point.

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