Technically, we had been waiting for the 50-day moving average breakout for several weeks. Since late October, this indicator has repelled any attempt to break out to the upside while posting a series of lower bottoms.
Previous attempts to rally that were capped include $60.90 on November 11, $59.85 on December 5, and $58.62 on December 26. Finally, on January 9, the market broke through at $58.25 with conviction and managed to extend the move for the first two days this week. Its strength has been fueled by a combination of aggressive short-covering and speculative buying. The market is now testing the 200-day moving average at $60.61, which could serve as the next trigger point for an acceleration to the upside.
Key Fibonacci Levels Point to Potential Rally Toward $64.75
Looking at the swing chart, we see the main top at $64.75 from September 26 and the main bottom from December 16 at $54.84. The retracement zone formed by this range is $59.80 to $60.96. Crossing to the strong side of the 200-day moving average and overtaking the upper Fibonacci level at $60.96 could launch an even bigger rally than we’re seeing right now. Aside from swing tops at $60.90, $60.91, and $61.63, the daily chart is wide open for an extension of the rally into $64.75.
Support Levels to Watch if Rally Loses Momentum
Crossing back to the weak side of the 200-day moving average will suggest the presence of sellers. This could lead to a retest of the 50% level at $59.80. If that fails, then we could see a plunge back to the 50-day MA. We expect to see new buyers on the initial test of this indicator.
As mentioned earlier, we know that the steep rally has been fueled by short-covering and speculative buying. A pullback to the 50-day MA will give us the opportunity to see who really wants to be long.
Iran Supply Disruption Fears Outweigh Venezuelan Production Boost
Fundamentally, prices are posting an extended rally on heightened concerns surrounding major oil producer Iran and the possibility of a meaningful supply disruption. The fear is strong enough to offset the new supply from Venezuela.
