Partly due to the rising dollar, commodity prices have come under pressure in recent weeks. Among them the price of oil too has pulled back and with it has just about erased half of its rally off the December lows. The bull case is that lower fuel costs will help the economy. The bears however will point out that slipping oil prices may just be the result of lower demand. Confused? You should be, but just know that anytime oil slips you can make both arguments.
Anyway and either way, let’s look at a couple of chart to see what the technical picture on the price of oil currently feels like.
From a longer term trend point of view the commodity has two pivotal trend lines- The upper one serves as resistance near the $98 mark while on the lower end a level closer to $77 is important to watch. As always, these are better reference points than spots for hard stops or profit targets. Further, note the narrowing trading range over the past twenty months or so in which the price of oil has gyrated.
On a closer-up chart we note that the price of oil is currently trading in the middle of the longer-term narrowing range discussed above. More near-term a simple up-trend line (in blue) serves its purpose. The up-trend line also happens to coincide with the 61.80% Fibonacci retracement of the swing up from the November lows to the February highs as well as the 200 day simple moving average (not on the chart). All three of these indicators are coming together in the $89.50 – $90.50 area, thus forming a beautiful confluence zone of support.
From a swing trader’s point of view however the price of light sweet WTI oil currently sits fairly solidly in no-man’s land. In other words, until we either get price confirmation that this confluence support zone is holding or the price of oil solidly pierces lower and through this zone, a high probability trade isn’t setting up. Should support fail oil could target $84 and $80, should it hold support the upside target again becomes $98.
From a seasonality point of view oil has a tendency to rise during the April-May period, so watching the support zone ($89.50 – $90.50) I shall.