Oil Prices are Pumped Up

Just a few quick charts to demonstrate the bullish price action seen in oil this week.

Today crude oil futures advanced another 5%, bringing the gain for the United States Oil Fund, LP (USO) up to 9.3% so far this week. Bullish factors that came into play include:

• The unexpected crude oil report number of 3 million barrels drawn
• A US drone shot down, potentially from Iran
• The weakening US Dollar
• Dovish Fed
• Traders short covering

If oil prices hold or rise on Friday, this will be the strongest week for USO this year.  When measuring opening to closing prices, this week rose 9.3%, which is greater than February’s bullish week.  Last December, the one-week move was 5.7%, however that advanced continued into the new year.

When looking for guidance or price targets, besides support and resistance lines, other technical analysis tools are available.  We’ll look at both Fibonacci Retracement Levels and Gaps on the next two charts.

Investopedia defines  Fibonacci Retracement Levels as:

A Fibonacci retracement is a term used in technical analysis that refers to areas of support or resistance. Fibonacci retracement levels use horizontal lines to indicate where possible support and resistance levels are. Each level is associated with a percentage. The percentage is how much of a prior move the price has retraced. The Fibonacci retracement levels are 23.6%, 38.2%, 61.8% and 78.6%. While not officially a Fibonacci ratio, 50% is also used. 

The indicator is useful because it can be drawn between any two significant price points, such as a high and a low, and then the indicator will create the levels between those two points.

The chart below demonstrates current Fibonacci Retracement Levels for USO using the high near $13.89 and the low near 10.53.  Price closed today just near its first retracement level of 38.2%.  This price could be considered a resistance area, which can turn into support.  If price continues to rise, using the 50% retracement level would give a price target of $12.21.

Next, we’ll look at gaps on the chart. Gaps occur when the high of the day is below the low of the previous day or when the low of the day is above the high of the previous day.  (There are many different types of gaps, but that will be saved for another post.) The USO chart gapped up today and has 3 recently formed gaps above, it as shown in the green boxes in the chart. Today price moved through the first green box and closed above it, technically filling the gap.  The next gap will be filled if price reaches near $12.70. This level can also be used as a price target.

In summary, there have been multiple bullish items for oil this week and trading volume has increased off the lows. If using technical analysis for price targets, two levels that can be watched for are the Fibonacci 50% level near $12.21 and/or “filling the gap” level near $12.70. It is interesting to note that the two forms of analysis have a similar level only a few cents apart:  The 61.8% Fibonacci Level is at $12.61 and the “filling the gap” level is at $12.70.

Disclosure: Author has both long and short positions in oil and oil related instruments.