At this point, a short-term rally makes a lot of sense, because it can be used as an opportunity to sell on signs of exhaustion.
- The West Texas Intermediate Crude Oil market has bounced a bit during the session on Tuesday as we continue to see a lot of volatility in this market.
- It does make a certain amount of sense since demand is going to continue to be sketchy at best.
- After all, if the global economy is going to be slowing down, then it’s difficult to imagine that the demand for crude oil will be strong.
Having said that, the reality is that we have a structural problem with supply longer-term, so at one point or another, this could very well be a nice buying opportunity. In the meantime, though, we are still very much in a descending channel, and it looks as if we are not ready to break out of there. Even though we are a little oversold now, you can also make an argument that we are at the very bottom of the overall channel. At this point, a short-term rally makes a lot of sense, because it can be used as an opportunity to sell on signs of exhaustion.
Looking for Signs of Exhaustion
The $85 level above is a large, round, psychologically significant figure, and it’s an area that the market will be paying the certain amount of attention to. The 50-Day EMA is starting to break below the $90 level, and it is drifting lower to the area. The market now looks as if it is going to continue to fade rallies, and therefore I will be looking for signs of exhaustion that I can take advantage of, as I have no interest in trying to buy crude oil in this environment.
After all, the Federal Reserve is going to be very aggressive with this monetary policy going forward, and I don’t think that changes anytime soon. The strengthening US dollar is going to continue to be a major problem with this market, and therefore it does make a certain amount of sense that oil falls since it will take less of those US dollars to own a barrel. Ultimately, the market is likely going to continue to be very noisy, but still favor the downside for the time being. The $75 level underneath would more likely than not make a decent target for the short sellers in the meantime.
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