Crude Oil is Oh-So-Close

Posted by jbrumley on September 19, 2017 3:13 PM

How does the line from the movie The Godfather go? "Just when I thought I was out , they pull me back in." That's an apropos description of for crude oil prices of late. Just when it looked like oil was going to break out of a short-term slump and rekindle a long-term recovery  move, something goes wrong to put the brakes on the effort.

There is good news though. That is, the lines in the sand have been clearly drawn, and crude is still within easy striking distance of them.

The chart of crude oil futures prices below has a lot going on, but we'll just address them all one thing at a time.

First and foremost, after the effort petered out in early August, the mission of climbing back above the 200-day moving average line (green) was renewed in early September. The July peak of $50.40 (solid orange line) came back into play though, so we have to respect that it's a ceiling until further notice. In the meantime, the falling resistance line (dashed, purple) that's up-ended all the major bullish efforts we've seen since early this year was finally broken last week. Unfortunately, that horizontal resistance wasn't ready to yield yet, sending oil prices back below the pivotal 200-day moving average line today.


Still, not only are oil prices chipping away at their key hurdles, they're doing so with a much more bullish foundation than they've been able to start such an effort with in the recent past. Namely, the 20, 50 and 100-day moving average lines (blue, red and gray, respectively) are not only showing us bullish crossovers, but are collectively acting as a floor for oil now.

There's still more working in favor of crude prices on the chart though.

It's usually not a factor worth considering simply because it's so inconsistent. But,  not only have crude oil prices been inching forward for a while now, there's plenty of volume behind the move... something we've not seen in a long while. The Chaikin line, which is essentially a volume-weighted momentum line, is knocking on the door of the highest high its seen in months, and the similar accumulation-distribution line is well into new-high territory. These indicators both tell us traders are proverbially putting their money where their mouth is, making real bullish bets on oil rather than just giving the idea some lip service.

Clearly this bullish undertow doesn't inherently mean crude prices are guaranteed to punch through the ceiling at $50.40. It does suggest, however, that if crude can get over that hump, there's likely to be a whole lot more buying interest waiting in the wings that will be unleashed as oil tiptoes into new-high territory. A whole bunch of traders have already been making the bet, despite plenty of doubts that oil has much of a future above $50 per barrel.

As for how high crude may climb if and when the ceiling at $50.40 is breached, the February high of $55 is our first checkpoint target. By that we just mean we'll want to reassess the momentum there because that's where the bears are most likely to make their next stand. It's very possible crude could blast through that level. We'll just have to wait and see, and enjoy the five-point move between here and there.