Time to Be Prepared; Next Oil Stop at 40 US$ area?

Crude Oil is showing weakness, having the popular down-trending 20 EMA as its resistance reference, just over the 50 US$ support level. At the same time, the US Dollar is still behaving very bullish, which adds even more fuel to the bearish cause. Current 50 US$ area is certainly a key fresh demand area, which should be kept at all cost, from the bullish point of view. Below that area, things don’t look too nice for bulls; there are not any strong supply-demand structure below 47 US$ with good chances to, eventually, stop a possible down-fall.

According to classic technical analysis, there are still a relatively wide space between 450 EMA and 200 EMA in daily time frame. At the same time, the EMA 450 is barely down-trending. Both technical conditions are suggesting that maybe bears are not really decided to seriously play below the referred 50 US$ level.

Summarizing, it seems that we have several bearish technical factors on Crude Oil. But as you probably know, when things are clearly pointing into a certain direction, and for some reason, the suggested movement can’t move-on, any bullish event could eventually trigger a strong movement into the opposite direction. That’s what contrarian thinkers say.

The key to successfully apply that contrarian approach, is to find-out how really bearish the crude oil is.

At this time, technicals were already discussed; things looks weak, but maybe not that weak.

What about fundamentals?

Well, here is where contrarians are able to find some good arguments to eventually expect some kind of decent bounce. Any Dollar pullback will also favor a crude oil bounce. And obviously, any real OPEC+ supply cut will help crude oil price improvement. On the demand side, things are not very bullish. BREXIT is another real factor to be taken in consideration this week.

Bottom line, we are more or less bad into the 50 US$ Crude Oil support area, but not that bearish to expect a very imminent strong down-move below the 47 US$/barrel area. Probably we need a few more days to technically define this area.

Eduardo R. Gils

TradingVest President

 & Editor - Energy Markets