Access Free Oil Trading Guide from DailyFX Analysts HERE!
Talking Points:
- Crude Oil Technical Strategy: Ichimoku, Trendline Key Fibonacci Support Being Tested
- CoT data shows an unwind could bring a strong drop
- Crude Oil at 4-week lows shows doubt on OPEC deal
The market has clearly begun to price in the failure of an OPEC deal to cut production as evidenced by a ~11% drop in nine trading days. News hit the wires on Tuesday that Nigeria and Libya, who recently requested an exemption from the OPEC production cut was increasing supply, which put further doubt on the potential of a deal to be struck when OPEC formally meets in Vienna on November 30.
Interested In a Quick Guide about OPEC, Click Here
A key variable that will be watched going through the month of November is the amount of output brought to the market. October was fueled with multiple inventory draws of aggregate supply, which was encouraging when the OPEC deal seemed secure. Now, as doubts grow if a deal will be reached and a further increase in output will further pressure the price of Oil in fear of a renewed supply glut.
A valid concern is the relative number of bulls as seen in the recent CoT report that shows the difference between net speculative positioning and net commercial positioning measured is at 98% of the 52-week percentile, and US Dollar is at 100% of the 52-week percentile. This relative extreme doesn’t imply a top but can be indicative that there could be a significant unwind if disappointing data emerges such as a failed OPEC deal.
D1Crude Oil Price Chart: Next Support Zone from Rising Trendline Ichimoku
Chart Created by Tyler Yell, CMT Courtesy of TradingView
Crude Oil has retraced 61.8% of its rally from mid-September that started at $42.72/bbl and went as high as $51.92/bbl in mid-October on DoE inventory data after the OPEC deal seemed a lock-in. A 61.8% retracement is still acceptable in an uptrend, and you can see above that we’re above the trendline drawn from the February low and connected off the July September low, but not by much. In addition to the Trendline, you’ll notice that the price is also sitting on the Ichimoku Cloud on the daily chart where we bounced aggressively from last time.
If the price breaks below this zone of support that is comprised of the Trendline drawn from February and Ichimoku cloud, we will likely see a much deeper correction. We mentioned the stretched relative positioning as explained in the CoT note, and a breakdown of these technical support points could provide a wave of selling pressure that drops price closer to $40/bbl.
We recently shared in a previous note that we would wait to turn Bullish until we observed a break above structural resistance of the presumed-corrective moves lower at $50 and $51. Until the break of resistance surfaces, we’ll be anticipating a move down toward $47.12/bbl. The burden of proof is now on the Bulls, and we’ll continue to doubt their arguments if the price of Oil to fails surpass $50-51/bbl before anticipating new 15-month highs anytime soon.
Key Levels Over the Next 48-hrs of Trading As of Tuesday, November 1, 2016
T.Y.
To receive Tyler’s analysis directly via email, please SIGN UP HERE