The direction of the May WTI crude oil futures contract on Tuesday is likely to be determined by trader reaction to the main 50% level at $94.14.
U.S. West Texas Intermediate crude oil futures are trading lower on Tuesday after plummeting during the overnight session. The selling pressure is being fueled by long liquidation as speculators continue to reduce positions amid talk of a renewed nuclear deal between the United States and Iran, and ceasefire talks between Russia and Ukraine
At 12:47 GMT, May WTI crude oil futures are trading $95.13, down $6.05 or -5.98%. On Monday, the United States Oil Fund ETF (USO) settled at $72.82, down $3.58 or -4.69%.
Essentially it all comes down to supply and demand. Ceasefire talks and more oil from Iran is easing fears of supply disruptions, while surging COVID-19 cases in China fueled concerns about slower demand.
The main trend is up according to the daily swing chart. A trade through $85.81 will change the main trend to down. A move through $126.42 will signal a resumption of the uptrend.
The minor trend is also up. A trade through $88.49 will change the minor trend to down. This will also shift momentum.
The short-term range is $85.81 to $126.42. The market is currently trading on the weak side of its retracement zone at $101.32 to $106.12, making it resistance.
The main range is $61.86 to $126.42. Its retracement zone at $94.14 to $86.52 is currently being tested. It is potential support.
The direction of the May WTI crude oil futures contract on Tuesday is likely to be determined by trader reaction to the main 50% level at $94.14.
A sustained move over $94.14 will indicate the presence of buyers. If this move is able to generate enough upside momentum then look for a possible short-term retest of the retracement zone at $101.32 to $106.12.
A sustained move under $94.14 will signal the presence of sellers. If this move creates enough downside momentum then look for the selling to possibly extend into the Fibonacci level at $86.52. This is the last key support before the $85.81 main bottom.
The price action suggests that speculations encouraged by retail brokers reading the headlines bought crude near the top after President Biden announced the ban on Russian oil and oil exports. Talk about “Buy the Rumor, Sell the Fact.” I now expect these speculators to sell or liquidate these losing trades in a value area like $94.14 to $86.52. Professionals are likely to be looking to buy this break for another run up.
We won’t know if we have a major top until the trend changes to down, or a secondary lower top is formed so be ready of a volatile two-sided move.
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.