It’s going to be choppy, so you need to be cautious with your position size.
The West Texas Intermediate Crude Oil market rallied a bit on Friday as we had been testing a major uptrend line. By counting the way we have, it confirms that we are still very much in an uptrend, or at least trying to save that uptrend. It is worth noting that the uptrend line sits just above the $100 level, so I do believe that the $100 level will continue to be important. In fact, it is essentially how I am going to define the overall trend, as a move below that level would have a lot of psychological influence on where we go next.
While things have been noisy over the last two weeks, it’s interesting to see that the trendline has held. If we turn around and recapture the 50-day EMA, just above the $110 level, I think it will bring in quite a bit more money, and people will be much more comfortable going long. Keep in mind that there are a lot of crosscurrents right now when it comes to crude oil, not the least of which would be fears about recession. In a recessionary environment, there will be less demand for crude oil, so that of course is negative for price. However, at the same time, we have to factor in the reality that during the pandemic very little in the way of drilling or exploration was done, so the market still has to deal with the supply catching up to the true demand.
China continues to go back and forth as to whether or not they are going to open up fully, and that has a huge influence on what happens with oil prices as China is the world’s largest consumer, followed by the US which is most certainly seeing a slowdown. With this being the case, it’s likely that we will continue to see a lot of choppy volatility, but as long as we can stay above the $100 level, I look at this through a prism of finding value. If we break above the $110 level and the 50-day EMA, I believe that it opens up the possibility of going back to the high again. Regardless, it’s going to be choppy, so you need to be cautious with your position size.