Chapter 45 07/24 WTI: Uptrend Intact, Focus on Buying the Dips
Abstract: The major downtrend phase that began on March 7, 2022, has evolved into a potential bullish reversal pattern. The key intermediate resistance level is at $77.30, which coincides with the upper limit of the 200-day SMA.
Fundamentals
WTI crude oil prices have been oscillating within a bullish "descending wedge" pattern for 8 months since the mid-term peak of $94.11 on November 7, 2020. This suggests that since the major downtrend phase from the high of $131.30 on March 7, 2022, to the low of $63.6 on May 4, 2023, there may be a significant evolving bullish reversal pattern in progress.
Since hitting a recent low of $66.95 on June 28, 2023, the price trend has started to show a minor short-term upward trend and has broken above the currently upward-sloping 50-day SMA.
Additionally, both the daily and hourly RSI oscillators are exhibiting positive configurations and readings which indicates that medium-term and short-term upside momentum remains intact.
If the upward momentum continues to hold above the key intermediate resistance level of $77.30, the next resistance level at $80.20 may be breached.
However, failing to hold above the critical short-term support level at $72.20 (also the 50-day SMA) would negate the bullish bias and push the price back into the consolidation range.
On the fundamental front, WTI crude oil will continue to take cues from another round of inventory data from API and EIA this week, although other market catalysts could have a more significant impact.
Firstly, the decision of the Federal Open Market Committee on Wednesday will be closely watched, as any indication of a tendency to continue increasing borrowing costs for the remainder of the year could imply downside risks for energy and other risk assets. After all, higher interest rates may put pressure on business and consumer activities, limiting demand for fuel and energy commodities.
On the other hand, relatively dovish statements suggesting a preference to maintain the status quo could lead to an increase in risk assets like crude oil.
Technical Analysis
On Monday, during the European session, WTI crude oil broke above the top of a symmetrical triangle pattern in the hourly timeframe, indicating an imminent rebound of the same magnitude as the formation.
The current trading range for WTI crude oil is approximately $73.00 to $77.00, suggesting a potential $4.00 upside from here. However, the price is also in a corrective mode, and the demand zone around $76.00 may require additional attention, potentially attracting more buyers.
Meanwhile, this level aligns with the 38.2% Fibonacci retracement of the triangle top at $76.24. A larger correction may reach the 50% Fibonacci retracement level at $75.92.
Regarding moving averages, the 100 SMA is slightly above the 200 SMA, indicating that the support around $76.00 may hold. Moreover, the crude oil price is trading above these indicators, which could serve as dynamic support for buying the dips.
Lastly, the stochastic oscillator is trending downward, suggesting bearish pressure is in play, and the correction might continue until oversold conditions are met. Similarly, the RSI is pointing downward, but the sideways consolidation may also reflect the market's consolidation phase.
In terms of trading strategy, it's recommended to focus on buying the dips, with $76.00 as a key support level.
Trading Recommendations
Trading Direction: Long
Entry Price: 76.00
Target Price: 82.24
Stop Loss: 73.60
Valid Until: 2023-08-07 23:55:00
Support: 75.86, 74.47, 73.80
Resistance: 78.00, 79.00, 79.94
