Chapter 11 08/28WTI: Meaningless Rally Serves Only as Price Correction
Summary: Following some selling pressure earlier this month, WTI crude oil experienced a slight rebound over the weekend, providing temporary respite from the downward momentum. OPEC+'s supply cuts continue to support the market; however, uncertainties surrounding the global economic outlook, including sluggish recovery in China and signs of potential recession in the U.S. and Europe, have added some pressure to the market.
Fundamentals
After enduring selling pressure earlier this month, WTI crude oil saw a minor rebound over the weekend, temporarily halting its downward trajectory.
Concurrently, recent economic data hasn't been encouraging, and central banks worldwide are maintaining a hawkish stance, potentially intensifying this pressure leading up to year-end. However, with the continuation of supply cuts, particularly voluntary reductions by Saudi Arabia and Russia on a monthly basis, the market is finding support. The trading range for WTI crude oil could potentially decline to the range of 73.73-75.82.
Over the past few days, WTI crude oil has been oscillating within a highly tense range, experiencing rapid rebounds each time it sharply breaks down, consistently surpassing previous highs. This pattern intensifies the speculative nature of this range.
This range aligns with earlier support levels this month and the 200/233-day SMA, which was breached just a month ago for the first time since August of last year. A bounce from here could be seen as a confirmation of the initial breakthrough. A breach below it would not only signal bearish sentiment but also trigger a breakout of a potentially significant suspicious head and shoulders pattern's neckline.
Overall, WTI crude oil has retreated from its August highs and found support around the monthly pivot point and the 38.2% Fibonacci level. It remains uncertain if the "corrective low" has been seen yet, but as supply concerns brew and the U.S. dollar index lingers around May highs, we believe further price retracement could enhance the risk-reward ratio and bearish bias remains while the price is still above last week's lows.
Technical Analysis
WTI crude oil has been steadily declining since reaching a 9-month high of $84.32 on August 10th. Despite the recent completion of a golden cross between the 50-day and 200-day SMAs, bearish pressure has shown no signs of easing.
The current momentum indicators suggest a prevailing bearish force. Specifically, the MACD is softening below the zero line but remains positive, while the Relative Strength Index (RSI) has fallen below the neutral zone of 50.
Should the bears continue to push prices lower, the July resistance level at $77.18 could potentially serve as initial support. Breaking below this level, prices might decline toward the range of $73.73-$75.82. Any further descent could find potential stabilization within this range, failing which could intensify resistance against future upward movement.
Conversely, bullish action could drive prices above the recent stubborn barrier at $80.36. After breaching this area, the oil price could potentially challenge the recent selling initiation point at the April peak of $83.32.
On the whole, WTI crude oil has been undergoing a downward correction following its rejection from a nine-month high during the summer travel peak. However, for the technical landscape to shift positively, prices need to breach the downward-sloping trendline connecting lower highs since August 2022, seeking downward momentum for a rebound. In terms of trading strategy, a preference for going short at highs is recommended.
Trading Recommendations
Trading Direction: Short
Entry Price: 80.00
Target Price: 74.30
Stop Loss: 81.80
Valid Until: 2023-09-11 23:55:00
Support: 77.18, 76.38, 75.52
Resistance: 80.36, 81.07, 82.50
