Santa Claus Rally for Crude Oil?

US West Texas crude oil futures (CL) attempts to breakout the resistance at 73 and a Santa Claus rally does show up based on the annual seasonality data for the past 21 years.

Seasonality analysis has been working well for West Texas crude oil futures (CL) this year. Take a look at the comparison between the seasonality chart (top pane) from Seasonax (based on 21 years of data) and the crude oil futures (bottom pane) below:

Seasonality Analysis for Crude Oil in 2021

It can be observed that after January’s brief consolidation, a rally started in February followed by a pullback in early of March. Next, the rally started in mid of March till Jun. A pullback started in June till August (annotated in pink). The direction has been consistent with the seasonality chart from Jan until August.

The anomaly stood out from September till mid of October as boxed in yellow where crude oil futures started a strong rally broke above the previous resistance while the seasonality chart was in a consolidation during that period.

A sharp correction in crude oil futures started in October till December has been aligned with the seasonality chart. As the crude oil price and the stock market shows relatively high correlation since November as reflected in the deterioration of the stock market breadth, it is a good idea to pay attention to the broad market movement.

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In December, a double bottom pattern can be observed in the seasonality chart while the crude oil futures had a higher low as a test of the previous selling climax in early December.

Based on the seasonality chart, crude oil is likely to start a rally after the double bottom until early January next year. It appears that a Santa Claus rally for crude oil futures is on its way based on the current price, which aligns with the seasonality chart.

Wyckoff Analysis Methods for Crude Oil Futures

Despite the seasonality chart favors a Santa Claus rally in crude oil futures, it is essential to analyze the price and volume to seek for confirmation with Wyckoff analysis methods.

In June, crude oil futures had an extensive run up after it broke out from 67 and peaked at 76 after forming a buying climax. Next a change of behavior bar, which was the largest bearish bar since the up wave showed up followed by a change of character (the largest down wave) tested the axis line where the previous resistance-turned-support at 65.

From there on, a trading range between 65-76 could be expected according to the Wyckoff methods. A secondary test at 62 in August acted as a spring action of the previous swing low followed by a sign of strength rally peaked at 85, eventually became an up thrust since it failed to commit above the resistance around 77.

After the failure to commit above 77, crude oil futures started a sharp correction with increasing of supply back to the support area of 62-65 of the trading range. The down wave with high supply level has been tested in the past two weeks with decreasing of supply and a higher low, which is an encouraging sign for a bullish case.

Should crude oil futures break above 73, it is expected to test the resistance zone between 75-77 followed by 80, which could be the Santa Claus rally for crude oil futures. Else, it might come back to test the swing low near 65 to consolidate further between the trading range 65-73.

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