Crude oil moved into a consolidation phase on the daily chart last week, trading in a narrow range between $96.50 per barrel to the downside and $98.50 per barrel to the upside, as the recent bearish sentiment finally eased, and with several signals that the market is now preparing for a possible reversal from this level. The first of these signals arrived on the 1st August, following the price waterfall of late July, with stopping volume coupled with a narrow spread candle, the first sign of buying by the big operators. This arrived immediately after the price waterfall as the commodity broke through the deep support in the $100 per barrel area, with increasing price spreads coupled with rising volume. The initial market rally was then followed by further selling which was once again absorbed on Wednesday last week, with a second narrow spread candle, and high volume, signaling further buying at this level, with Friday’s price action, testing the resistance now in place at the $98 per barrel level on low volume.
The key now is whether all the selling pressure has been absorbed in the last few days, and if so, then expect to see oil move to test this level, and any hold above the $98.20 per barrel region, should provide the platform of support for a test of the $100 per barrel level in due course. Friday’s price action also delivered a pivot low, which added to that of late July is also signalling a reversal in sentiment. In addition, the Canadian dollar is looking increasingly oversold, and with the US dollar now appearing to be running out of steam on the weekly USD index, the outlook for oil is now starting to turn bullish once again. However, as always, volume will lead the way, and once the ‘mopping up operation’ is complete, provided any move higher is associated with strong and rising volume, then the recent bearish phase for oil may just be coming to an end.
By Anna Coulling
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