Based on yesterday’s inside move and the price action from Tuesday, the direction of the February WTI crude oil futures contract on Thursday is likely to be determined by trader reaction to $46.11. Taking out $46.11 then recapturing yesterday’s close at $48.17 will put the market in a position to form a potentially bullish closing price reversal bottom. We could see some short-covering on an intraday basis, but it needs to close over $48.17 to actually form the reversal bottom on the daily chart.
U.S. West Texas Intermediate crude oil futures are trading lower on Thursday after a short-covering rally the previous session helped the market post its first higher close in three sessions. The catalyst behind the short-covering rally on Wednesday was likely the weekly U.S. Energy Information Administration’s (EIA) report which showed crude inventories fell by 497,000 barrels in the week to December 14, smaller than the decrease of 2.4 million barrels forecast.
At 0746 GMT, February WTI crude oil futures are trading $47.21, down $0.96 or -1.99%.
The main trend is down according to the daily swing chart. A trade through $46.11 will signal a resumption of the downtrend with the next target the April 5, 2016 main bottom at $45.13. This is a potential trigger point for a potential spike into the February 26, 2016 main bottom at $44.68.
Yesterday’s inside move did not affect the downtrend. All it did was suggest investor indecision and impending volatility. The move also indicates that all it may take is a couple of drawdowns in U.S. inventories to get this market moving higher again.
The short-term range is $54.77 to $46.11. Its retracement zone at $50.44 to $51.46 is the nearest resistance area.
Based on yesterday’s inside move and the price action from Tuesday, the direction of the February WTI crude oil futures contract on Thursday is likely to be determined by trader reaction to $46.11.
A sustained move over $46.11 will indicate the presence of buyers. This could generate some intraday counter-trend buying with no particular upside target in place at this time.
Taking out $46.11 with conviction could drive the market into the April 5, 2016 bottom at $45.13. The daily chart starts to open up to the downside under this level with the February 26, 2016 bottom at $44.68 the next target.
The trigger point for an acceleration to the downside is $44.68. Taking out this level could trigger a steep drop into the February 9, 2016 bottom at $43.51 and the January 1, 2016 bottom at $41.48.
Taking out $46.11 then recapturing yesterday’s close at $48.17 will put the market in a position to form a potentially bullish closing price reversal bottom. We could see some short-covering on an intraday basis, but it needs to close over $48.17 to actually form the reversal bottom on the daily chart.
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.