Trade in the same consolidation area

At this point, I’m very leery of putting too much money into the market, because frankly, it’s so messy right now.

The West Texas Intermediate Crude Oil market fell to start on Wednesday, but then turned back to retake the $100 level. It’s a microcosm of the volatility we’re seeing around the world, and I don’t think it’s getting any better anytime soon. The 50-day EMA is at the $110 level, and that could be a target, but we would need to break above the previous uptrend line to even have that conversation. At this point, the $110 level seems to be the ceiling.

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On the other hand, if we were to break below the black 200-day EMA on the chart, this opens up the possibility of a significant decline, perhaps to the $90 level. Breaking below the $90 level opens up the possibility of a significant drop, as this will trigger many algorithms to start shorting again. At this point, I believe the $90 level is breached, and we are looking at the $80 level for support. After that, and perhaps more likely, we will find buyers closer to the $70 level.

Keep in mind that the market is more likely than not to pay close attention to production numbers and of course the US dollar. If the US dollar continues to climb, it is quite possible that this will also weigh on this market. After all, the US dollar is like a wrecking ball for almost everything, including crude oil. At this point, I’m very leery of putting too much money into the market, because frankly, it’s so messy right now. The OVX, or Oil Volatility Index, has been everywhere, and you can see why.

Pay close attention to the economy and inflation numbers, because if the world’s central banks are to tighten monetary policy, it will significantly reduce aggregate demand in the long run, because the economy will almost certainly enter a recession. During a recession, the demand for crude oil will fall to the bottom, so everything plays out in the negative direction. On the other hand, if inflation starts to subside, then the markets will start to think that central banks would be less aggressive.

WTI crude oil

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Garland K. Long