In yesterday’s analysis we noted that strong bulls can be seen around the 99.5 support, however strong bears were also seen around the 100.0 level and as such we were expecting sideways movement in the near term. In this regard we were not far off as prices did rebound higher from 99.5 and subsequently rebuffed by the 100.0 resistance during early US session. However, prices pushed up higher strongly after, breaking not just 100.0 but also 100.5 resistance in quick fashion despite risk trends being bearish during the period. Fundamentally, economic data released yesterday were also mostly bearish and should not have contributed to such a bullish push.
Hence, it may be an understatement to say that underlying sentiment in WTI is bullish. However given that overall direction in the S/T remains bearish, it is difficult to imagine prices able to keep climbing without proper fundamental support. From a technical perspective, Stochastic indicator is heavily overbought with both Stoch and Signal lines pointing lower currently – suggesting that a bearish cycle may be in play soon. Also, prices appear to be within a tight consolidation zone between 100.5 – 100.8 similar to what we’ve seen back on 27th March. As such, further bullish activities may be unlikely despite yesterday’s surprise jump especially with traders likely to stay on the sidelines ahead of Non-Farm Payroll event risk later.
Long-term chart is more bullish though. The rally coincide with a rebound off the rising trendline, while Stochastic curve has flattened around the 50.0 level – a significant level of reversal seen back in late Nov 2013. Hence, with prices breaking the 100.5 resistance, the bullish trend is temporarily restored and a move towards 103.0 becomes possible. However, in order for a full reversion of bullish trend prices will need to push beyond the 2014 high which will open possibility for further bullish targets.
The only problem is that fundamentals remained weak and latest manufacturing data across the world have came in weaker than expected. The only thing WTI Crude has going for it is a latest report that suggest that US shale oil reserves may have been overestimated. If that is indeed true then at least we should be able to see the oversupply issue relieved slightly. But this does little on the demand front, and as such this news would only keep WTI prices afloat rather than being outright bullish. Nonetheless, we should be able to see the tightening of Brent/WTI spread and that may present some speculative opportunity for traders.