Crude oil broke out of the resistance level at 47.00, but rally was technically capped at 49.00. From the perspective of Institutional traders (as per some macro reports) Hedge funds started buying when oil prices bottomed below 30$ per barrel and in last two weeks these positions were trimmed, leading to temporary selloff. Speculation is still dominating the price action in Crude oil futures. Key levels are stealing the spot light.
Below is the 4h chart of crude oil with price action analysis.
1. Price action broke the resistance levels.
As I mentioned in my last article the significance key levels at 46.00 – 47.00 played its part in better way. Price action broke these resistance levels with a sustainable buying pressure. But after breaching the resistance level at 47.00, buying pressure lost momentum (it’s visible in candlesticks). Later market changed the direction from 49.00.
2. Congestion before the Breakout.
Price congestion before the breakout, also known as “pre breakout” formation technically indicates trapped traders. When large number of weak hand players executes positions at specific key levels in hope of a reversal, market acts in contrary to their opinion. This event was clearly perceivable in this specific formation.
3. Decision point zone at 46.00 played a significant part.
A specific key level becomes a decision point, if it is speculated or monitored by wide number or market participants. Decision points naturally have the potential of supply-demand imbalances. It is not hard to devise a trading strategy only based on these levels. In this case, we can see how price action reacted at decision point in a precise way.
4. Market Sell-off from 49.00, what it means? Is it a Pullback or BOF?
Recent price movements in crude oil beg a lot of questions. This indicates the rampant speculative forces dominating the Price action. Technically it seems like both Breakout failure and Pullback. The main game changers in such uncertain scenarios are always fundamentals. To get better confirmation and clarity traders should focus on how price action develops in response to fundamental inputs such as geo –politics and supply disruptions.
