Crude Oil Hits $50
I wrote yesterday about how I would be a keeping a close eye on WTI Crude Oil if/when it hit $50 per barrel. This happened earlier today, just barely, when a high price of $50.01 was made. Take a look at the daily chart below:
The first thing to notice is that on several occasions in recent months, the $50 level has acted as strong support or resistance. I have noticed that large round numbers such as $100 or $50 have had an additional tendency to act as strong levels due to psychological anchoring bias. Another factor that makes the present set-up particularly interesting is the long-term trend line which can be drawn connecting all the recent major swing highs. As well as today’s price action so far being a rejection of the $50 level, it has also been a rejection of the trend line, giving added weight here to the potential resistance.
It is too early to go short yet – this is a point to wait and watch carefully. It is important to get in early at reversals, but not too early. One day is usually too early unless the rejection is a very large candlestick compared to the average size of the recent candlesticks. Of course, it is possible that we have already seen the high price for several weeks, but if we drill down to an hourly chart we can see we haven’t even seen a single important lower low yet. There is no evidence at all of trend change:
I do not expect to feel comfortable taking a short trade here until the price has broken below the $48.23/15 area, marked by the blue horizontal lines in the above chart.
If you are worrying that the financial media is full of talk that the price is going to go up and up, don’t let that deter you. When WTI Crude Oil was turning bullish at the low of $42 per barrel just a few weeks ago, the financial media was talking about little else apart from how Oil was bound to head lower still. Ignore journalists with newspapers to sell and no skin in the game. They need headlines to justify their existence. Pay attention to what the price is telling you!