Baxia Markets
January 25, 2023

US Oil threatens a major breakout

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Is US oil on the edge of a breakout?


The US Oil CFD rallied on Tuesday as we have broken through the neckline of an inverted head and shoulders pattern. We are also above the 50-Day EMA, so it’s very possible that traders will look at this as the beginning of something rather large. At this point, it looks as if the $82 level is going to offer a small barrier, which of course then allows for the market to go even higher if we can get above there.


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The 200-Day EMA is currently sitting at the $87.15 level and dropping. That could be a nice dynamic target, but the “measured move” looks for something closer to the $90 level. This will be the target that a lot of technical traders will be looking toward, but there are multiple things to think about behind this move.


What to expect now with US oil?

The fundamental situation for crude oil is a bit murkier than the chart would suggest. Perhaps this is just a nice short covering rally, because the market could go all the way to the 200-Day EMA and still look very bearish from a longer-term perspective. However, that’s not to say that traders are going to take advantage of this. From a supply and demand concern, most traders are worried about the possibility of a lack of demand around the world. While that could be something that traders will have to deal with eventually, there’s also the argument to be made that supply is a bit thin, and of course the United States will eventually have to refill the Strategic Petroleum Reserve.


Regardless, does look like momentum is entering the market, and clearly, if the market were to break above the $82 level a lot of “FOMO traders” will jump into the picture as they will have a fear of missing out. As momentum picks up, you will see more and more people jump in, which will be your signal to start looking for exits closer to the 200-Day EMA.


The market turning around and breaking back down below the bottom of the candlestick for Tuesday would confirm that we are not ready to take off quite yet, it would more likely than not return to consolidation between $73.20 and $81. Expect volatility, but we should be setting up for a bigger move.

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