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James Hyerczyk

U.S. West Texas Intermediate crude oil futures are trading sharply higher late Monday, reversing earlier losses on the hopes of deeper production cuts by OPEC and expectations of additional stimulus from central banks.

The market rebounded from multi-year lows early in the session to post a dramatic outside move closing price reversal bottom chart pattern. This type of movement strongly suggests that both aggressive short-covering and fresh buying were behind the rally.

At 20:43 GMT, April WTI crude oil is trading $47.15, up $2.40 or +5.32%. This is up from an intraday low of $43.32.

Daily April WTI Crude Oil

Daily Technical Analysis

The main trend is down according to the daily swing chart. However, momentum may be shifting to the upside following today’s huge reversal bottom.

The low of the session, $43.32, was slightly below the January 20, 2016 main bottom at $43.55. Recovering this level helped skyrocket the market into the December 24, 2018 main bottom at $45.92. Overcoming this level helped trigger another surge to the upside. Both bottoms were tied to two previous major events from OPEC so we may have found the cartel’s line in the sand.

The short-term range is $54.66 to $43.32. Its retracement zone at $48.99 to $50.33 is the primary upside target.

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Short-Term Outlook

Monday’s rally was impressive, but all it did was establish a low and shake out a few of the weaker shorts.

The first leg up from a major bottom is usually fueled by short-covering. Taking out Monday’s high will indicate the buying is getting stronger. If this creates enough upside momentum then look for the rally to possibly extend into the retracement zone at $48.99 to $50.33.

Since the main trend is down, sellers are likely to come in on a test of this area. The selling may even be strong enough to trigger a 50% to 61.2% retracement of the first leg up. This would be a normal move because the market will have to pullback in order to set up a secondary higher bottom.

Right now, all we’re looking at is short-covering. A secondary higher bottom formation will show us that the buying is real.

So going into Tuesday’s trade, the near-term direction of the market will likely be determined by trader reaction to the retracement zone at $48.99 to $50.33.

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