Short term correction or longer term reversal? This is the question many longer term oil traders are considering and whilst it is early days to offer a definitive answer, there are already signs this is the former rather than the latter, and there are several reasons for this.
First, the dramatic reversal of last week, which brought the steadily developing bullish trend to a shuddering climax ( a trend I had suggested would develop some weeks ago) was as a result of geopolitical news, and nothing to do with supply and demand or even OPEC. It was a knee jerk reaction, short and simple and therefore one which is unlikely to have much in the way of follow through once the waters calm. Next, note the volume. Hardly extreme for a week when oil prices swung violently in a $7 per barrel range.
Next, the price action this week is narrow with virtually no continuation of the selling pressure. Finally, we have some solid support now coming into play in the immediate area at $58 per barrel and denoted with the red dashed line of the accumulation and distribution indicator for NinjaTrader. Should this hold, the key levels for the reinstatement of the longer term bullish trend are clearly visible at $60.20 per barrel and then the run back to $64 per barrel where more developed resistance awaits.
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading
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