Chapter 13 08/01 WTI: Although the Indicators Are Overbought, the Bulls Continue to Control the Market
Abstract: In the past July, WTI crude oil recorded the biggest monthly increase since the beginning of 2022, and the price of WTI crude oil fell below US$81.00 on Tuesday because the rise of the USD suppressed the commodities denominated in USD.
Fundamentals
The price of crude oil soared last month, supported by the signal that demand exceeded supply after OPEC+ cut production. In addition, with the cooling of inflation in the U.S., people have re-speculated that the world's largest economy can avoid recession and keep the crude oil market in a positive tone.
At the same time, crude oil is supported by the prospect of additional stimulus measures in China, which will lead to stronger trade activities, thus increasing the consumption of fuel and energy commodities. At the same time, reports of limited supply also put upward pressure on oil prices.
Although the upcoming EIA and API inventory data may once again affect the trend of crude oil prices, the commodity may get more clues from the main employment indicators in the U.S. After all, these may provide clues for the non-farm payrolls report released on Friday, which may, in turn, affect the Fed's tightening expectations. In particular, strong employment data may boost expectations of more interest rate hikes, which will benefit risky assets such as the USD and crude oil commodities.
On the other hand, pessimistic employment data may cause traders to suspend pricing at the September meeting or later meetings, which may bring back safe-haven funds.
Technical Analysis
In the past month, WTI crude oil showed a steady upward trend and rose to the range resistance level in the 1D timeframe. At present, as technical indicators reflect bearish pressure, the price may fall from above US$81.15.
The 100 SMA is lower than the 200 SMA, indicating that the path of least resistance is to the downside, or that the upper limit is more likely to hold than break. However, the price is also above both SMAs, which is an early sign of bullish pressure.
Stochastic has been showing overbought conditions for a long time, so a move lower means that the bears will eventually take over. The Relative Strength Index has also moved into the overbought zone, suggesting that the bulls are exhausted, so once it falls, crude oil prices could follow suit.
On the other hand, a break above resistance may spur a rebound of the same size as the range.
Overall, factors such as the price range and investors taking profits from crude's strong rally give reason to be cautious about the further rebound in the near term. However, as long as the retracement does not fall below our psychological level, the bulls remain on track to test the target range of US$82.60. It is recommended to buy the dips.
Trading Recommendations
Trading direction: Long
Entry price: 80.00
Target price: 82.60
Stop loss: 77.00
Deadline: 2023-08-15 23:55:00
Support: 79.98, 78.20, 77.15
Resistance: 81.49, 82.29, 82.60
