Crude oil had a big break last week. Friday saw a big selloff. Fundamentally, a weak US consumer confidence caused traders to lower demand estimates. Technically, two relatively narrow range days and a doji on Thursday led to a breakout sale on Friday.
Monday saw follow through selling; it initially pushed below trendline support at 68.87, and tested 50% retracement support at 67.47. That Fibonacci support held, and it rebounded late in the day, closing back on the trendline.
The two day decline pushed momentum down to a level to generate a buy signal. I use two period momentum to look for setups where it’s a market move reaches a point where it’s likely to reverse. Momentum tends to lead price. In this example, momentum dropped to a level where it was likely to turn higher, and price would follow.
This is what crude oil did today-early weakness gave way to a rally, and a buy early in the session yielded a good profit.
Looking ahead, crude hit an objective and resistance at 70.67. It’s a 50% retracement of Thursday’s high to yesterday’s low, and last week’s low at 70.68. A close over that level could lead to further rally. With weekly inventory reports inventory reports out this afternoon and tomorrow morning, I’d keep an open mind about the short term direction.
Momentum is a simple indicator, but I find it can be effective for futures swing trading, especially when combined with other chart patterns.
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