The US Oil market has rallied rather significantly for a couple of weeks, only pausing occasionally to catch his breath. Now that the market finds itself at the $80 level, there are a lot of questions to ask as to where we can go next.
The 50-Day EMA sits just above the $80 level, and it does make a certain amount of sense that it could offer a lot of resistance. Furthermore, there is a massive bearish candlestick right around the same level from a couple of weeks ago that shows real selling pressure. Beyond that, as traders are dealing with illiquid conditions, it’s very likely that a lot of them will be perfectly comfortable staying outside of the market between Christmas Day and New Year’s Day. When you look at the candlestick for the Friday session, you can see that a long wick has formed, suggesting that the market could not hang on to the bullish momentum.
If the break down below the $78 level, it is more likely than not that the overall downtrend continues, perhaps opening up the possibility of a move down to the $75 level, maybe even the $72.50 level. I recognize that this is a market that will have a lot to think about, not the least of which will be the fact that the global economy looks to be sinking fast. If that’s going to be the case, then it makes a lot of sense that we would see demand for oil get crushed. That is what the market has been trying to tell us for months now, so the question now will be how much further can it go?
One of the major bullish arguments for US Oil and other oil contracts right now is that there is a lot of trouble in the supply chain. In other words, it’s very likely that sooner or later the world economy starts to reopen, and oil spikes quite drastically. However, China - the world’s number one importer of crude oil - is now seeing 37 million new Covid cases per day, suggesting that the reopening trade is going to struggle there as well. At this point, it still looks like there are plenty of people out there willing to step in and start shorting this market on signs of exhaustion.
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