I have been very bearish on oil for quite some time now but this week has brought about a trend reversal on many different time frames. Before I go into my analysis I think it’s important to consider this trade without any bias as to where you think the price of oil is heading. Essentially it makes no different where we think oil is heading. Think about it. Nobody ever thought oil was going to go to $150 a barrel that fast, but it did. And when it collapsed to it’s present level, everybody (including myself) doubted it the entire way down thinking it would rebound quickly and make new highs.
Therefore I’m merely pointing out that our opinion on where oil should trade at inhibits our ability to trade in the moment. Below is a weekly chart of $WTIC with a chart of the Dow imposed behind it. It’s important to note the times when they trade inverse each other and when they trade in tandem. March-August of last year Oil really took off as the Dow was cratering and then they began to trade in unison again after than. Now we are beginning to see Oil take on a more leadership role as the Dow flounders. It will be important to observe this trend and see if it develops into more of a substantial trend, thus confirming my bullish bias.
Also notice the strength in the RSI AND Stochastics as they move 2 steps forward and 1 step back in an upward fashion. While a break out of this triangle formation will be confirmation, I think enough bullish signs are present that a move up is inevitable despite whatever the overall markets do. Oil is acting like it is finished moving lower which is bad for the overall markets.
When you look at a shorter time frame you see the bullish realignment of the moving averages. Notice how it bounced off support at the 38.2% retracement level, displaying bullish behavior. If oil starts to fail you will see it first in this chart, but personally I think we’re heading higher.