The West Texas Intermediate Crude Oil market has initially tried to rally again during the day on Friday, but as we have seen multiple times, the market has fallen apart, and it looks like we are seemingly hell-bent on going down to the $70 level. The $70 level course has a certain amount of psychology attached to it, so it’ll be interesting to see whether we pay a lot of attention to it.
Quite frankly, no matter how you look at the market, it is a bit overstretched, so it’ll be interesting to see how this plays out. The overall ugliness of this move has been quite impressive, and therefore one must wonder when we run out of momentum. The market has been very noisy to say the least, but I think sooner or later we are going to get a “rip your face off rally”, which is quite common in these massive bear markets.
Market to Remain Noisy
- At this point, I believe that the $72.50 level is a significant resistance barrier, and therefore it might be interesting to see whether this market can break above there.
- If it does, then I see resistance at the $75 level, being psychological, and then the $80 level is more structural. Anything above the $80 level has the look of a huge turnaround, but I don’t think that is likely without some type of catalyst.
- Quite frankly, this is a market that will remain very noisy, so I think it’s probably a situation where you must be very cautious about your position sizing, especially as we start to head toward the end of the year when you would have a severe lack of liquidity.
At the end of the year, we could see a massive, short covering rally, so do be aware of that. After all, a lot of people made a ton of money shorting crude oil, so it does make a certain amount of sense that they may want to take profits home. If we do break through the $70 level handily, that could send this market reeling, perhaps looking to the $68 level. One thing is for sure, energy traders certainly seem to think there is a major recession coming and that demand is going to fall off of a cliff.
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