Keep an eye on the US Dollar Index, it could give you a little bit of a “heads up” as to where we are going next.
The West Texas Intermediate Crude Oil market has gapped lower to kick off the trading week, but you should also keep in mind that Monday was Labor Day in the United States and Canada, so this would have a massive influence on the lack of volume. Ultimately, as long as there is a lack of volume it is difficult to make too many decisions based upon price action, but as we get involved in the Tuesday session, we may get a bit more clarity.
Breaking down below the $67.50 level could be a very negative turn of events, and at that point I think we would go looking towards the $65 level, or perhaps even down to the 200 day EMA. On the other hand, if we turn around a break above the $70 level, it could be a bullish sign, as it would not only clear the large, round, psychologically significant figure, but it will also show the market breaking above that downtrend line that has been so prevalent as of late.
Right now, most traders are trying to figure out whether or not the demand for crude oil will continue to strengthen, or are we about to see the economy rollover? The markets are all over the place right now when it comes to this question, so it should not be a huge surprise to see that oil has essentially been grinding along. You could make a significant argument for the market running out of steam, so a pullback could very well be what we see next. This is why I am placing so much emphasis on the downtrend line, because at least it gives me a way to make a bit of a “binary decision” as to which direction I am going to be playing.
Pay attention to the US dollar, it can also have its influence on the market, as of course the crude oil market is priced in that same currency, so if the currency strengthens then a lot of times it can work against the value of the commodity that we are talking about. Crude oil tends to be especially sensitive to this, see you should keep that in the back of your head. Keep an eye on the US Dollar Index, it could give you a little bit of a “heads up” as to where we are going next.