Key Points:
- 100 day EMA providing dynamic support.
- Long-term trend line remains intact.
- Could move back towards the $50.00 handle.
After a sizable slip last session, oil prices are looking poised to rebound over the coming week which could see the $50.00 handle challenged once again. Specifically, now facing the 100 day EMA and long-term trend line, oil could have a fairly sharp reversal in store for us if the bulls can regroup and wrest control of the commodity back from the bears.
As mentioned above, a key component in the argument for an imminent reversal in oil prices is the commodity’s new found proximity to the 100 day EMA. Illustrated below, the rather large plunge seen over the past 24 hours ran out of momentum just as it began to challenge the moving average seriously. Additionally, as a result of this dynamic support, we are already seeing oil begin to rake back some of its losses and potentially confirm the incline of the long-term trend line.
This brings us to the second factor that is likely contributing to a near-term reversal in oil’s momentum. A long-term, upwards-sloping trend line is quite evident on the oil charts and should prove to be a difficult support for the bears to break through. Furthermore, as we have already seen three previous reversals along this line, it is reasonable enough to expect another one in this instance.
A third factor beginning to make itself felt is the current stochastic oscillator readings on the daily chart. As shown above, oil’s recent plunge has also brought it firmly into oversold territory which will certainly not have been missed by those shorting the commodity. Moreover, due to this foray into oversold territory, the bulls will likely be eyeing up the $50 handle once again and readying themselves to wade back into the market.
The $50 mark should prove to be near the upper constraint of the range we can expect to see oil rally to for a number of reasons. Setting aside the fundamental resistance offered by US Shale producers, upsides should be capped around this level as a result of the historical zone of resistance that exists here. Additionally, this price coincides with the 61.8% Fibonacci retracement which should limit the ability of the commodity to push through the $50 mark.
Ultimately, oil is highly likely to enter a ranging phase in the medium-term but this will most probably occur after at least one additional push higher. This is largely due to the fact that the commodity doesn’t look quite ready to break the long-term trend just yet unless, of course, we see a massive US Crude inventories build in the next few days. However, do keep an eye on the announcement as a draw could also help the upswing to gather its strength.