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Oil : Tales of Recovery

(Mon, Jun 2020). WTI Crude oil prices re-tested the $40-handle this week. Just two months ago the current contract in Oil plunged well-below the zero-value; but since a strong recovery has shown with Oil prices gaining since early-May. Can Oil bulls pose another breakout? Given the two June tests at the $40 level combined with the build of an inverse head-and-shoulders pattern, bullish breakout potential may remain into next week’s trade.

 

OIL PRICES RE-TEST $40 JUST TWO MONTHS AFTER GOING TO -40

Things move fast in global markets, especially when we’re in the midst of a global pandemic.

It was now just about two months ago that Oil prices blew up and traded below the zero level on April 20th. While there was certainly a supply/demand issue playing a role ahead of the capitulation, it was a mess of a scenario that allowed for Oil prices to temporarily trade at negative values; and with storage facilities already largely full there wasn’t even much opportunity for arbitrage in buying those below-zero contracts, taking delivery and then selling that same oil in forward months.

Since then, however, the supply/demand picture has changed a bit. Oil prices have started to perk up again and this week, for the second time in the month of June, WTI tested the $40-handle on the chart; something that hadn’t happened since early-March, just before the coronavirus pandemic began to get priced-in to forward-looking projections.

Longer-term analysis on the current contract in Oil futures is complicated by that late-April bearish run, when prices plunged below the zero-level. And that very significant dent on the chart is going to be evident in a number of related derivatives, including CFDs that offset into those markets. But – one mannerism of analysis that may offer that bigger-picture look is by focusing on the next contract month, as this did not plunge below the zero value during April. This pains a less bullish picture as the almost two-month-bounce has yet to completely fill the gap from early-March.

So, while the strength since early-May is evident in both venues, incorporation of that prior gap combined with a Fibonacci retracement drawn on that major move highlights a point of emphasis around the $41.34 level, which is the 50% marker of the 2020 major move as well as being the top-end of that prior gap.

 

SHORT-TERM BREAKOUT POTENTIAL, LONG-TERM RESISTANCE

Taking a shorter-term look at the matter ahead of next week’s open, and there is bullish potential with breakout possibilities above the $40-handle. Given the multiple tests of that level, combined with the build of an inverse head-and-shoulders pattern, and buyers may eventually be able to break-through to the other side. The big question is for how long that drive may last, as just beyond is a potential point of resistance around the 41.34 level; so gains may be capped after a strong run breaks out to a new high and then quickly tests another level of resistance.

 

 

 

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