Technicals | Jun 15 2016
Bottom Line 14/06/16
Daily Trend: Down
Weekly Trend: Up
Monthly Trend: Up
Support Levels: 47.26 / 43.19 / 39.69 / 35.00
Resistance Levels: 51.65 / 57.81 / 60.89
Technical Discussion
Regardless of the rise higher we have been witnessing , oversupply continues to remain a concern. Last week it was also reported that the number of rigs drilling for Oil in the U.S has been on the rise again. This tends to reinforce that higher prices have encouraged more drilling to come on line which is going to do nothing for the supply situation as we head into the second half of the calendar year. And so the balancing act continues. Lower Oil prices are unprofitable for many producer yet as soon as they rise, many are back online which means the market gets flooded again. Above resistance circa 60.89 is where the bulls start coming back into play.
Reasons to stay neutral below 60.89:
→ surplus conditions globally continue to weigh on price
→ demand / supply potentially starting to balance
→ OPEC surplus intervention could start creating a price floor
→ price action starting to look good yet it's still only early days
The expected wave equality point was achieved when recent price action tagged 49.56. Price has headed a little higher since yet has started to struggle a little at these levels, and especially with the Type-A bearish divergence continuing to linger. Our view is that this divergence is now getting very close to fully triggering and this could easily see a price drop down to the 43.00 – 45.00 price zone for a retest of the breakout zone. Bigger picture though we continue to like the potential of the larger reverse head and shoulders pattern, as annotated on our chart tonight. It would mean price heading up toward the 60.00 price zone (neckline) over the coming months, then taking a decent breather before pushing higher again to trigger the pattern. The high probability target via this scenario would be up towards 88.00, so certainly one for the medium term watchlist for later on in the year. Would love to see our immediate trade hang in there as part of this process, yet basis the technical view forwarded in this review, such an outcome appears unlikely. Not for this trade anyway.
Trading Strategy
We remain long at 40.15 with our stops now managed up to 47.74. It's been a solid outcome on such a big and volatile contract yet the pivot points to the downside have held strong via a series of higher lows locking in, and these have provided us with strategic areas to trail our stop position to. With potential head winds coming into play now though, we have our stop about as tight as we could possibly have it, so nothing further to do regarding the risk management side of things.
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