The recovery of Oil from 86.0 has been remarkable. Price has broken above the 89.0 – 90.0 resistance in mid April, alleviating bearish pressure and allowing bulls to eventually take over 92.0. Price faced resistance around 94.0 which is also confluence with current overhead Kumo, resulting in a fall back towards 90.0 which held beautifully, transforming overall bias from a bearish to a bullish one. This bullish bias pushed price easily from the new 90.0 low to above 92.0 and 94.0 within the last 36 hours of trade last week, with price now finally clearing the April 12th’s high – back where the great commodities slide started. By clearing 94.0 convincingly, price has now banished all lingering bearish doubts and opens the door for bullish momentum to come in.
Some may wonder why bulls were able to thwart what seemed to be a strong bearish momentum leading all the way back to 1st April, especially given that US Department of Energy reported that Crude Oil inventories are increasing at a remarkable rate (This was what sparked the decline back to 90.0 on Wednesday). Risk appetite seems to be the main reason, with US Stocks printing historical highs once more, coupled with stronger than expected NFP print. Reported fires in 2 storage tanks on Friday in Louisiana also stoke bullish flames, allowing price to stay above 94.0 on Friday. Price receive further boost during early Asian trade on Monday due to Malaysian election results – with Asian stocks reacting positively, adding onto the stronger risk appetite and push commodities including WTI crude towards 1st April highs.
Ichimoku shows a bullish Kumo Twist and a bullish Kumo breakout last Friday, which add on to bullish bias from a technical perspective. Stochastic readings are also pointing higher, appearing to form a trough within the Overbought region.
Hourly Chart is equally bullish, with price trading back up above the rising trendline last Friday, and managing to use it as a support towards the week’s close. Monday’s open used it to bounce higher, but price currently is facing some pulling back after the incredible rally that saw price gaining more than 6 USD per barrel within the past 2 trading days. The bearish engulfing candlestick suggest that bullish momentum from the short-term may be evaporating, and a move towards the rising trendline may be possible. Stochastic readings agree with the outlook with a Stoch/Signal cross with readings pointing lower.
Fundamentally, we’ve discussed previously that demand in Oil may not be accurately reflected via DOE’s weekly inventory report. The assertion remains the same despite current rally. It seems that current rally is not fundamentally supported which means we could easily see price falling quickly should risk appetite disappear. Given current strong rally from S&P 500 and Dow Jones Industrial Average, the time is unlikely to be now, and give Crude Oil some room to rally and potentially printing new 2013 highs in the process, just like the 2 aforementioned stock indices did recently.
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