Is This Crude Oil Rally For Real?
Is This Crude Oil Rally For Real?
No doubt about it, last week’s market action was some of the craziest we’ve seen in years. From Monday’s eye-popping 1,000 point DOW downdraft to Wednesday’s scorching 600 point rally, the equity markets literally went crazy.
But while equity markets were stealing the headlines, something very important happened in crude oil…
West Texas Intermediate (WTI) rallied a stunning 10% on Thursday and an additional 5% on Friday. Add in the quick 6% gains seen in yesterday’s session and you’ll find the commodity has rallied to just under $48 a barrel- a $10 price explosion in just three trading sessions.
Take a look…
As you can see, WTI is turning sharply higher in recent trading. After weeks of heavy losses, the sudden bullish price action has energy investors wondering if the bottom is finally in for the commodity.
Could it really be the bottom for the oil market?
As you know, it has been a disastrous year for the oil industry. When OPEC kept production steady in November 2014 to retain global market share, the bottom fell out of the crude.
The commodity fell from just under $76 a barrel just before OPEC’s infamous meeting, to just under $40 in the middle of last week.
But with WTI rallying sharply the past few days, investors are searching for signs the commodity has finally bottomed out.
Here are the signs I’m seeing…
As you can see in the chart above, WTI fell into the high $30 a barrel range recently, which is within a stone’s throw of the lows set in early 2009.
Also notice the Relative Strength Index (RSI) at the bottom of the chart failed to make a new low along with crude (red lines). This RSI divergence is a good sign selling momentum has run out of steam.
But that’s just the start of it…
A number of big name crude producers are also showing some captivating signs.
Take Exxon Mobil $XOM for example…
Notice how $XOM, the world’s largest oil producer, traded on very heavy volume the past week. In case you’re unaware, extreme volume at the end of a sharp downtrend can be a sign of capitulation by sellers.
In other words, a large number of investors were forced out of $XOM in a panic selling episode. As a result, it’s very unlikely $XOM trades lower than the $67.50 area set last Monday.
Here’s another producer that’s reversing sharply…
As you can see, Chevron $CVX, the world’s fourth largest oil producer by market cap, experienced capitulation selling last week as well. The panic selloff likely forced out most of the remaining sellers.
Here’s the deal…
At this point, the odds of WTI dropping below the 2009 technical support level at the $35 area have become very low. As a result, you should be looking for an opportunity to get long the oil market in coming sessions.
But let’s be clear…
We’ll likely see some substantial profit taking off this latest bullish move, which will take WTI back to the $45 area or slightly lower in the near future. That’s when it will make sense establishing a bullish position in the crude tracking commodity ETFs listed here.
Until Next Time,
Justin Bennett
BIO: Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com. With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them. Sign up for our free reports and commodity newsletter at https://commoditytradingresearch.com/free-sign-up.
