The Crude Oil price snapped a 7-day losing streak on Monday, jumping $3.50 to its best trading day in nine months. Why? Because no one thought it would. Over the last week, positioning in crude oil futures has become increasingly bearish. Not only have systematic traders been building short positions, but large speculators have also dramatically reduced their longs. This left the price ripe for a short-covering rally. All it needed was a trigger.
That trigger came yesterday when the Crude Oil price bounced from the 200-day moving average. After dropping to within 16 cents of the long term indicator at $61.58, WTI Crude started to reverse. A broad market risk-on following disappointing PMI data sent the dollar sharply lower, providing another bullish kicker.
As Rabobank noted over the weekend, following a breakdown in short-term momentum indicators over the last week, Commodity Trading Advisor’s (CTA’s) flipped from outright long to net short of oil futures. This forced the price lower, and in turn, triggered a cascade of selling as more systematic traders jumped on the negative momentum. However, when the tide turns, those same systems will need to cover their shorts. Furthermore, should the price move even higher, they will start to build long positions. This could create an ideal environment for the Crude Oil price to surprise on the upside.
NYMEX WTI Price Forecast
The daily chart shows that the crude oil price bounced ferociously after almost tagging the 200 DMA at $61.58. This is clearly the first and most significant support level. And as long as this holds, the price should stabilise. However, a failure to sustain the indicator would undoubtedly illicite more selling.
On the upside, the 100 DMA at $66.90 is the first obstacle, followed by the 50 DMA at $68.76. The obvious danger for shorts is a continuation of yesterdays rally, which starts to clear the overhanging resistance. This could lead to another wave of short-covering, and in that event, I think an extension to Julys high of around $73.00 may be achievable in the coming weeks.
At which stage, there may be an opportunity to bet against the crowd once again.
Crude Pil Price Chart (Daily)
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