This week will see how the price of crude oil reacts to the 200-day moving average. The 200-day moving averages long known as the most reliable form of technical analysis to its simplicity and effectiveness. In short, if the current price is above the 200-day moving average (average price of roughly a year’s worth of price data) bullish bets should be favored. On the opposite end, price below the 200-day moving average tends to encourage an outright parish bias with a conviction to sell rallies as they are seen as temporary and less sustainable as dictated by the average price.
After a 60.5% rally off the February 11 low, which has been aided in no small part to the weakness of the US dollar and the uncertainty surrounding Federal Reserve action to hike interest rates more than once this year, Oil’s true technical test has arrived. As you can see on the chart below, the price of oil has failed to times the last year at the 200-day moving average in both June and October within a few cents of the price and the moving average.
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Now, a break higher beyond the 200-day moving average will uniformly change the tone of risk and energy and affected markets such as emerging markets that are heavily commodity dependent. Since falling below the 200-dma back in July 2014, oil has been in an outright bear trend. As you can imagine, many analysts and traders are expecting the optimism to fail at this key resistance once again.
The 200-DMA Has Been A Formidable Foe For WTI Crude Oil Since July 2014
Key Support Levels from Here
As of Monday, 200-day moving average sits if you sense below $42 per barrel. Given the fortitude of the moving average, there is little resistance outside of this level that matters for now considering the party risen nearly 61% and prices to lower off the 200-day moving average majorly before in the last year.
Support is another story altogether. If we turn lower opportunity moving average, yet hold minor and major support, it is likely only a matter of time before the 200-day moving average is tested again. A short-term moving average and 21-day moving average, currently at $36.11 per barrel is a hopeful support because aligns with the recent low on March 15. While not a price support, it is also helpful to watch the RSI (5) support below the chart, because he break of the trend line and show momentum is falling again. Adding to the $36.11 level per barrel for key support is the 38.2% Fibonacci retracement of the February 11 low up to 200-day moving average.
Contrarian System Warns of Potential Top
In addition to the technical focus around the 200-DMA resistance, we should keep an eye on Bulls have begun to crowd out the market for the first time in a month. A move into resistance, and possibly beyond aligns with our Speculative Sentiment Index or SSI. Our internal readings of Oil are showing an SSI reading of 1.1309. We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are long gives a signal that the US Oil may continue lower. The trading crowd has flipped from net-short to net-long from yesterday and last week. If the reading were to turn further positive yet again, and the price broke back below $36.11 support, we could begin looking for a retest of the $30/bbl level.
T.Y.
