WTI Crude – Stoch Bear Cycle vs Rising Channel Support

Hourly Chart

Crude Oil pushed above 100.0 USD during early Asian hours, reaching 102.0 within 3 hours after the breached was made. This rally was a result of increasing political turmoil in Egypt, coupled with increase demand evident by the American Petroleum Institute stock figures, which indicated a fall of more than 9 million barrels vs an expected 3 million drop. However, there is a huge speculative component in the post 100.0 move, considering that the most significant rally in a week came in well after the API figures have been released. Furthermore, looking across Asian stocks, it is clear that risk appetite isn’t at its strongest right now with Nikkei 225 closing -0.31%, STI -1.37% and Kospi -1.64%. There wasn’t any significant positive Asian economic news releases either, with the most important news of the session – China Non-Manufacturing PMI coming in at 53.9 vs previous month’s 54.3. Hence it is not unreasonable to say that Crude Oil prices were going against the bearish tide this morning.

So why did price rally to begin with?

Well, it wasn’t all doom and gloom to begin with. Nikkei 225 – the earliest Asian market to trade, actually gaped higher on open, pushing around 50 points higher. This allowed Oil prices to stay above the rising Channel Top and the key 100.0 figure, and speculators and technical bulls did the rest. However, as the move wasn’t fundamentally supported, it is not surprising to see prices pulling back lower swiftly once the initial bullish wave is over. Price is currently finding support along the rising Channel Top, and given the strong technical bullish pressure, we could see price continuing to trade higher by straddling the trendline.

Nonetheless, a break back into the Channel cannot be ruled out, as a break into the Channel which exposes Channel bottom as a bearish target does not necessary invalidate current uptrend, but merely suggest that bullish momentum is shifting back to a more moderate gear – which would actually be more sustainable considering that this acceleration IS fundamentally supported previously. Stochastic readings lends weight to such a scenario, with both readings and signal line pushing below 80.0, suggesting that a proper bear cycle is underway. However, given the shallow troughs formed as recent as yesterday, traders using Stoch indicator may wish to wait for Stoch level to breach the “support”  around 62.0 to act as a confirmation for a bear cycle scenario.

With the Department of Energy’s own inventory numbers scheduled to be released today, we could see yet more stronger bullish speculative buying activities should the numbers concur with what last week’s DOE numbers and this week’s API numbers show. Should the numbers surprise on the downside, it is possible that prices may dip on the news, but what is more of interest would be the reaction after. If we see price recovering quickly from the dip, it will imply that underlying bulls remain strong, and we could potentially be able to see continued highs moving forward in 2013.

More Links:
AUD/USD – Retail Sales Vs Trade Balance, Winner: RBA
EUR/USD Technicals – 1.30 breached, downside galore
US Market Roundup – Weaker Stocks on Stronger Factory Orders. ADP Next.

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