As we move into the new trading month, albeit a short one, I thought it would be worthwhile to consider the monthly timeframe for crude oil, given the bullish sentiment which remains firmly in place and helped higher by geopolitical events.
Regular readers will know I have been calling oil higher for many months once the key level of price-based resistance at $82 per barrel was breached as was indeed the case in January and denoted with the red dashed line of our Quantum accumulation and distribution indicator. The significance of this break cannot be underestimated as it propelled oil into the low volume node on the VPOC histogram at $85 per barrel and on towards $90 per barrel as expected.
So the question now is whether we are moving to $100 per barrel in the medium term? However, for oil bulls enjoying the ride I would urge a degree of caution. And the reason can be found when we consider the candles and volume for December and January.
In December, we would expect volume to be reduced owing to the holiday period, and the candle was generally in agreement. Now consider January’s candle. It is almost twice the move of December, yet on the same volume. This suggests at the very least a pause in the upwards momentum with congestion, or even a reversal on the horizon as the volume associated with this candle is anomalous as it is too low.
What is also interesting on this chart is the general decline in volume over the last 18 months, when compared with that of 2017-2019 which is substantially higher.
So while the outlook for oil remains bullish and confirmed by the trend monitor indicator for NinjaTrader over this period, we are now perhaps reaching a pause point in the $91 per barrel level, events in Ukraine notwithstanding.