Crude Oil Update – Profit-taking Fuels Technical Bounce

June West Texas Intermediate crude oil is trading higher and inside yesterday’s range. The price action suggests investor indecision and impending volatility. Despite the rebound from yesterday’s sell-off, investors are still worried about the supply glut.

Technical Analysis

The main trend is up according to the daily swing chart. Momentum has been trending lower since the formation of the closing price reversal top on April 12 at $54.14.

The main range is $47.58 to $54.14. Its retracement zone at $50.86 to $50.09 is the primary downside target. This zone was hit on Wednesday when the market traded down to $50.51.

The new short-term range is $54.14 to $50.51. If there is a rebound rally then its retracement zone at $52.33 to $52.75 becomes the primary upside target.

Forecast

Based on the current price at $51.36 and the earlier price action, the direction of crude oil today is likely to be determined by trader reaction to the 50% level at $50.86.

A sustained move over $50.86 will mean buyers have returned to defend the 50% to 61.8% zone. This could create the upside momentum needed to challenge the downtrending angle at $51.64. Crossing to the strong side of this steep angle will likely lead to a test of the short-term retracement zone at $52.33 to $52.75.

A failure to overcome $51.64 will indicate the presence of sellers. Taking out the 50% level at $50.86 will indicate the selling pressure is getting stronger. This could lead to a retest of yesterday’s low at $50.51. If this fails then look for a drop into the support cluster at $50.09 to $50.08. We could see another steep sell-off if $50.08 is taken out with conviction.

Simply stated, look for an upside bias to develop on a sustained move over $51.64 and a downside bias to develop on a sustained move under $50.86.