Crude Oil Price Above $50 a Barrel, Reversal incoming?
Crude Oil prices have surprised many investors and traders. Similar to Copper, in a sense both are an economic recovery play. Way back last year, we saw Oil hit 0, but then form a head and shoulders reversal pattern. The uptrend has been held since then, but we have finally now hit a major resistance zone which could signify a shift in trend.
First of all the fundamentals. Oil above 50 is big because it signifies a recovery. Even with second lockdowns in many nations, Oil continues to move higher. The play was the covid vaccine. With a vaccine developed, the question now becomes how quickly it can be distributed and how quickly can people get inoculated. People like Kyle Bass see this being bullish because the demand for air travel once things re-open will be greater than many expect. People will want to live life and do things they were holding back on due to lockdowns. Jetfuel demand will be overwhelming.
The second major fundamental is of course OPEC. The oil cartel is saying that demand for oil is cloudy due to pandemic uncertainty. Maybe a stronger mutation means the vaccines become useless, and we go back to lockdowns. OPEC members have decided to maintain their production cuts due to low demand. But really, could this just be a way to raise prices?
OPEC discussions can be an issue going forward with surprise cuts or production increases. The Biden administration and their green energy plan will be seen as negative on fossil fuels, but the truth is we cannot phase out of oil very quickly. Oil will still be here.
Yes, I know that many oil company balance sheets are bad, but I have told my readers that in this irrational exuberance fueled market, investors will look for things that are cheap. Our options were limited to airlines, cruise ships, banks and energy. Energy just looked the best because these companies will continue to pump, and with rising oil prices, can churn out a profit.
Regardless of what you think about Oil, it has surprised many people who were bearish the commodity. I trade the markets I see, not the ones I hope or want to see. Emotions are set aside. I have profited on the way up, and I believe there is an opportunity to play a short.
Starting with US Oil (West Texas), the 4 hour chart is showing some price reaction at the major 53.50 resistance zone. I recommend going out to a longer daily time frame to see why this area is major resistance. A good zone for a trend reversal.
On the 4 hour chart, we are forming the reversal pattern known as the double top. In fact the short was triggered, but due to US markets being closed today, a lot of liquidity is not present for follow through.
The breakout was triggered when we closed below 52.25, and price pulled back to retest and currently sellers are stepping in. It looks good.
Placing our stop loss above 52.55, we can target the major psychological zone at 50.00 to the downside. We can assess from there if price continues making multiple waves lower.
Brent Crude (UK Oil) actually looks much nicer.
The very popular head and shoulders reversal pattern.
Same technicals apply: breakout has been triggered and we have pulled back to retest the breakout zone.
To the downside, I would target a broad zone between 51.00-52.00 as it is a major flip zone (an area that has been both support and resistance in the past).
For an entry, you can enter right now, or wait for price to make new recent lower lows.
First of all the fundamentals. Oil above 50 is big because it signifies a recovery. Even with second lockdowns in many nations, Oil continues to move higher. The play was the covid vaccine. With a vaccine developed, the question now becomes how quickly it can be distributed and how quickly can people get inoculated. People like Kyle Bass see this being bullish because the demand for air travel once things re-open will be greater than many expect. People will want to live life and do things they were holding back on due to lockdowns. Jetfuel demand will be overwhelming.
The second major fundamental is of course OPEC. The oil cartel is saying that demand for oil is cloudy due to pandemic uncertainty. Maybe a stronger mutation means the vaccines become useless, and we go back to lockdowns. OPEC members have decided to maintain their production cuts due to low demand. But really, could this just be a way to raise prices?
OPEC discussions can be an issue going forward with surprise cuts or production increases. The Biden administration and their green energy plan will be seen as negative on fossil fuels, but the truth is we cannot phase out of oil very quickly. Oil will still be here.
Yes, I know that many oil company balance sheets are bad, but I have told my readers that in this irrational exuberance fueled market, investors will look for things that are cheap. Our options were limited to airlines, cruise ships, banks and energy. Energy just looked the best because these companies will continue to pump, and with rising oil prices, can churn out a profit.
Regardless of what you think about Oil, it has surprised many people who were bearish the commodity. I trade the markets I see, not the ones I hope or want to see. Emotions are set aside. I have profited on the way up, and I believe there is an opportunity to play a short.
Starting with US Oil (West Texas), the 4 hour chart is showing some price reaction at the major 53.50 resistance zone. I recommend going out to a longer daily time frame to see why this area is major resistance. A good zone for a trend reversal.
On the 4 hour chart, we are forming the reversal pattern known as the double top. In fact the short was triggered, but due to US markets being closed today, a lot of liquidity is not present for follow through.
The breakout was triggered when we closed below 52.25, and price pulled back to retest and currently sellers are stepping in. It looks good.
Placing our stop loss above 52.55, we can target the major psychological zone at 50.00 to the downside. We can assess from there if price continues making multiple waves lower.
Brent Crude (UK Oil) actually looks much nicer.
The very popular head and shoulders reversal pattern.
Same technicals apply: breakout has been triggered and we have pulled back to retest the breakout zone.
To the downside, I would target a broad zone between 51.00-52.00 as it is a major flip zone (an area that has been both support and resistance in the past).
For an entry, you can enter right now, or wait for price to make new recent lower lows.
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