The West Texas Intermediate Crude Oil market initially gapped lower to kick off the trading session on Monday, as we continue to see a lot of volatility in the energy space. The gap lower was of course a very negative turn of events, and the market then shot towards the $65 level as it had been previous support. The $65 level of course is a large, round, psychologically significant figure, and will attract a lot of attention. We have already seen the $65 level offer support, so the fact that we bounce from there should probably not be a huge surprise.
The candlestick that we ended up forming was a hammer which of course is a bullish sign, but we have made a series of “lower lows”, perhaps suggesting that we are trying to form a descending triangle. Breaking down below the $65 level could then open up the possibility of a move down to the 200 day EMA, followed by the $60 handle. Another thing that would make this a very negative move is the fact that we would be breaking down below the bottom of the hammer which of course and of itself is a very negative move.
On the other hand, if we clear the gap that formed at the open, and then reached towards the $70 level, then the market is going to make a significant stand in order to try to break out and go higher. To the upside, if we do break above that $70 level it is likely that we could go looking towards the $74 level, where the market had sold off from previously. Looking at this chart, you can also make an argument for a descending triangle, so that is also a very negative turn of events as well. You should also pay close attention to the US dollar, due to the fact that it is negatively correlated to the crude oil market in general, as well as most other commodities. In general, we should continue to keep an eye on the US Dollar Index as well as the correlation to crude oil, right along with the overall risk appetite of traders globally. I do think that overall, we are going to see a lot of noisy behavior in general, but things are starting to look a little bit dourer by each passing day.
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