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James Hyerczyk
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WTI Crude Oil

U.S. West Texas Intermediate crude oil futures soared over 3% on Friday, falling short of its contract high reached in October 2018. The rally was fueled primarily by Thursday’s decision by OPEC and its allies not to increase production in April. Prices continued to accelerate on Friday after the U.S. government released a report showing the U.S. economy added more jobs than expected in February.

On Friday, May WTI crude oil settled at $65.92, up $2.30 or +3.62%.

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Despite the strong rally, the market could start facing some headwinds if the U.S. Dollar continues to move higher. A strong greenback tends to reduce foreign demand for the dollar-denominated asset.

Additionally, analysts and traders have said that slow physical crude sales and recovery for demand not predicted until around the third quarter suggest that the price rally is unwarranted.

Given the prolonged move up in terms of price and time, the best sign of a major top will be a closing price reversal top chart pattern on both the daily and weekly charts.

Daily May WTI Crude Oil

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through $66.23 will signal a resumption of the uptrend, while a move through the October 3, 2018 main top at $66.92 will reaffirm the uptrend.

The main trend will change to down on a move through $59.08. This is not likely, but due to the prolonged move up in terms of price and time, we should start watching for a dramatic closing price reversal top. This won’t change the trend to down, but it will be an early indication that the selling is greater than the buying at current price levels. This could trigger the start of a 2 to 3 day correction.

The new minor range is $59.08 to $66.23. Its retracement zone at $62.66 to $61.81 is the first downside target.

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Short-Term Outlook

If you read my analysis daily then you know I use the entire futures contract for my analysis rather than the nearby futures chart. I feel this gives me more accurate support/resistance levels and price targets. Using the nearby chart creates problems because not everyone agrees on when to rollover. The first of the month, the last day, the first day of the rollover, and sometimes when volume drops, these are all use to determine the trading range during the last month of trading.

Sometimes it’s accurate. This usually occurs when there aren’t any wide price swings during the delivery month. But sometimes it’s the highs and lows used are different if there are volatile price swings during the delivery month.

Last May when prices turned negative on the last trading day is one example. If you rolled over the first notice day, the low price doesn’t exist. If you rolled over the last trading day then you see the low.

That being said, I prefer using the entire contract being traded. My May WTI crude oil chart shows the contract high was reached on October 3, 2018 at $66.92. This is my target this week.

Taking out $66.92 could trigger an acceleration to the upside with the psychological $70 level the next upside target.

Taking out $66.92 then closing below $65.92 on Monday will form a closing price reversal top. If confirmed, this could trigger the start of a minimum 2 to 3 day correction. The sell-off could extend even further if the market forms a closing price reversal top on the weekly chart.

For a look at all of today’s economic events, check out our economic calendar.
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