Oil is the second of our commodities much in focus today, with Friday’s knee jerk reaction to the geopolitical events propelling it higher on the day and through the $64 per barrel level, a price point I outlined in my last past of 2019. The post was entitled ‘Oil building a bullish platform‘ with a summary as follows:
I certainly expect the $64 per barrel area to be tested early next year as bullish momentum continues to hold sway, particularly if we see the US dollar fall to 95 or lower on the dollar index, coupled with continued management of supply. Then it will be a question of whether any breach of this level is accompanied with good volume. If it is, we can expect to see oil prices continue higher and on to the test the next level of minor resistance at $72 per barrel.
The first of these was achieved on Friday before oil closed off the highs with an interesting candle. First, we have the volatility trigger which is an unusual occurrence on the slower timeframes. The indicator is based on average true range (ATR) and is triggered when the price action moves outside these parameters. The signal it sends is to expect one of two things. Either a reversal of the primary trend ( bullish in this case) to bearish, or congestion. The trigger also signals participation by the big operators and confirmed with the extreme volume on the chart. The depth of the wick to the upper body of the candle also signals a degree of selling on the day, with the expectation of consolidation within the spread of the candle.
The WTI contract for February has opened gapped up today and trading at $63.77 per barrel at the time of writing, and the key now is to wait for the high of Friday’s price action of $64.09 per barrel to be taken out with a close above on the daily timeframe.
Moving to the weekly chart for a longer-term perspective, and the first thing to note is the decline in volume with rising prices since the start of December. Under normal circumstances this would be a red flag as a clear anomaly and therefore signaling weakness. However, what we have to remember is such a decline in volume is to be expected in the run up to the holiday season and therefore is ‘normal’. And as if to confirm this last week’s volume is above average and supportive of the price action.
However, the important point here is the resistance denoted with the red dashed line of the accumulation and distribution indicator at $63.90 per barrel. This is being tested today and was the catalyst for the rally reversal in Q1 of 2019, so it is an important area. If this level is breached with a strong break and hold supported with good volume, we are likely to see the bullish trend for WTI oil continue. And note too the volume falling away on the volume point of control histogram to the right of the chart, where a low volume node awaits at $66 dollars per barrel with progress then likely to be slow moving to $68 per barrel and beyond as the volume increases once more.
Finally, note the trend monitor indicator which is supporting the current bullish sentiment, and should tension escalate further in the Middle East, oil will continue higher.
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading
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