Key Points:
- Recent gains could be built on in the coming weeks.
- The shifting technical bias is indicating that gains could be quite substantial.
- A near-term peak is likely to be seen at the $47.69 handle.
Oil finally seems to have found a near-term bottom – much to the relief of OPEC – and this could set the commodity up for sizable recovery over the coming weeks. Of course, the overarching consensus that the cartel’s efforts will be overshadowed by North American supply remains in place which will likely mean that we aren’t destined to move back above that $50 mark. Nevertheless, there could still be some decent upside potential to capitalise on.
Primarily, it is the shifting technical bias that suggests that recent gains may be only the beginning of a much larger upswing for oil prices. This may come as somewhat of a surprise to some as, quite clearly, the EMA’s are about as bearish as they can be and the long-term trend line is certainly in decline. However, upon closer inspection, there are actually numerous signs that the oil could be much more buoyant than is immediately apparent.
For one thing, the Parabolic SAR – typically a good indicator of trend direction – is barely one pip above price action. Effectively, this means that we could see the reading shift to bullish with even the most modest day of buying pressure. Additionally, the MACD and the signal line are well on the way to converging which could indicate that a shift in momentum is now in full swing. One final thing worth mentioning is just how close oil prices are to dipping back into oversold territory as this will be reinforcing support around the $43 handle and capping downside risks.
All things considered, there is a decent likelihood of us seeing gains extend moving ahead which now begs the question, where can we expect resistance to come back into play? As shown above, a key resistance level exists around the $46 mark which could prove to be a near-term peak for oil. Largely, this can be chalked up to the presence of both a historical reversal level and the 38.2% Fibonacci retracement around this price. However, this resistance level is by no means an unassailable barrier to the potential rally and we could instead see gains extend all the way up to the $47.69 handle. At this price, the influence of the 100 day moving average will also be adding to the overall selling pressure – perhaps sparking yet another reversal and resumption of the overarching downtrend.
