Light Crude (CL1, Weekly) – Is there a reversal in crude or just a correction in downtrend?
The first week of the year crude made an impressive come back although it did not manage to close above the key $50 level. Oil seems to be oversold and some short covering was necessary. The engulfing pattern on the weekly chart is a hint of possible reversal. Also MACD histogram is signalling weakening momentum as there is a hope the US-China trade talks may continue in a meaningful way what has lifted an optimism.
In our opinion, however, any bullish enthusiasm is premature. After the EIA inventory report showed marginal change in crude stock, the gasoline and distillate inventories rose sharply and this is a bad sign. The reason is that this can lead to lower refinery demand in the coming weeks as we will see the effect of production cut (and discipline of OPEC) earliest next months. The decline in rig count is also a warning sign as the low crude prices make shale oil rigs less profitable.
So despite the nice divergence on daily chart I would be very cautious with large positions for now. It is very likely that we will see another test of the year-end lows and the next stop is pretty uncertain. The first possible aggressive long entry I would try at around $46.72 and the second unit at latest low at 42.36. A little more confident we can be after WTI closing the week above $50 level but for a specific entry level we need to wait for the price action. If the 42.30 is taken out, I would turn bearish selling into the negative momentum with a tight stop.
Should you have any questions feel free to contact us anytime.
Good luck Champs!
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