U.S. March West Texas Intermediate Crude Oil futures are trading lower on Friday, pressured by the global supply glut which continues to grow due to increased U.S. production. However, the market is also being underpinned by the possibility that OPEC may extend its program to reduce output beyond May 2017.
The market is also posting an inside day which suggests investor indecision and impending volatility. The current sideways trading pattern is likely to continue as long as hedge fund long positions remain at or near record highs. Despite the bearish supply data, the market is not likely to break much until the hedge funds and money managers begin liquidating their positions.
The main trend is down according to the daily swing chart. A trade through $54.55 will turn the main trend to up. A move through $53.12 will signal a resumption of the minor trend. A trade through $51.86 will signal a resumption of the main trend.
The price action is also being controlled by a few retracement levels that are putting a cap on rallies and a floor on breaks.
On the upside, the retracement zone resistance is $53.84 to $54.01. This is followed by the major retracement zone at $54.39 to $54.99. The latter has stopped rallies previously.
On the downside, the retracement zone support is $53.21 to $52.89. This zone provided support yesterday at $53.12.
Based on the current price at $53.45 and the earlier price action, the direction of the crude oil market today is likely to be determined by trader reaction to the uptrending angle at $53.61.
A sustained move under $53.61 will indicate the presence of sellers. This could create enough downside momentum to challenge the 50% level at $53.21, yesterday’s low at $53.12 and the Fibonacci level at $52.89. This is followed by another uptrending angle at $52.74.
A sustained move over $53.61 will signal the presence of buyers. This could lead to a labored rally into $53.84, $53.93 and $54.01. Taking out $54.01 could trigger an acceleration to the upside with potential targets at $54.24 and $54.39. The latter is the last potential resistance angle before the $54.55 main top.
Watch the price action and read the order flow at $53.61 all session. Trader reaction to the angle will tell us if the bulls or the bears are in control today.