Crude Oil Price Update – Testing Key Retracement Zone at $48.57 to $50.03

U.S. West Texas Intermediate crude oil futures were underpinned on Friday on the hopes that the scheduled high level talks between the United States and China on January 7-8 would lead to a fast ending of the ongoing trade dispute. The market’s surge, however, was fueled by increased demand for higher risk assets after dovish comments from Federal Reserve Chairman Jerome Powell ignited a huge stock market rally.

On Friday, February WTI crude oil futures settled at $48.31, up $1.22 or +2.59%.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is trending higher. A trade through $54.77 will officially change the main trend to up, while a move through $42.36 will signal a resumption of the downtrend.

With this type of pattern, the first leg up is usually fueled by short-covering. And based on the latest government data, the hedge funds are still holding on to big short-positions. Bullish traders are trying to drive out some of the weaker shorts.

After the initial rally, we usually see a short-term pullback. This move is designed to set-up a secondary higher bottom while lowering the trend change level. In other words, we’re looking for a “W” chart pattern to form. This pattern would indicate that new buyers are coming in to support the market.

The minor trend is up. This led to the shift in momentum to up.

The main range is $54.77 to $42.36. The market is currently testing its retracement zone at $48.57 to $50.03. Since the main trend is down, sellers are re-emerging on a test of this zone. They are trying to form another lower swing top.

The minor range is $42.36 to $49.22. If there is a correction from $48.57 to $50.03 then the first downside target will be the short-term retracement zone at $45.79 to $44.98.

Daily Swing Chart Technical Forecast

Based on Friday’s price action and the close at $48.31, the direction of the February WTI crude oil futures contract on Monday is likely to be determined by trader reaction to the main 50% level at $58.57.

Bullish Scenario

A sustained move over $48.57 will indicate the presence of buyers. The first target is Friday’s high at $49.22. Taking out this level will indicate the buying is getting stronger. This could lead to a test of the main Fibonacci level at $50.03.

The Fib level at $50.03 is the trigger point for an acceleration to the upside.

Bearish Scenario

A sustained move under $50.03 will signal the presence of sellers. If this move attracts enough sellers and creates enough downside momentum, we could see a break back to $45.79 to $44.98 over the near-term. This area should attract aggressive counter-trend buyers.