Events that have occurred in the month of July on the Oil market can be divided into two periods; a period of dynamic growth and a period of corrective movements.
Until the half of the month the market was in a strong increase trend reaching the level of 77.74, after which a corrective movement was initiated (Pic. 1, ABC). From the fundamental point of view this correction was caused by the increase of efficiency in U.S refineries, the high level of oil import by the U.S and also signals from OPEC with regard to increasing oil production. The correction took the shape of an irregular correction with the following relations:
- A = C
- 127.2% A = B
The irregular correction reached the level of 74,17 and stopped. What could the reasons be for the market stopping at this moment?
1. The correction stopped on the 38.2% retracement of the increase wave measured from 11 June. Breaking the 41.4% retracement on the 73.87 level could be a signal to trend change, even in the short term.
2. The current correction has the relation of 1:1 with the previous one (Pic. 1, pink rectangles).
3. Equality of the following: AB = XC
4. Pro increase candlestick formations at the end of the correction; hammer formation on the M30 interval, and piercing pattern on the D1 interval.
After the corrective movement the market once more returned to the increase run, reaching the level of 77.10 (Pic. 1, line C1). The correction which followed this increase swing seems typical for a new movement in the direction of the prime trend and represents 78.6% of the increase.
From my point of view, technical analysis points to the fact that the oil market should continue its movement in the increase trend and that the previous top on the 77.89 level could be broken in the near future. Corrections are obviously possible but I also believe that they should not stop the market from reaching record peaks. On the other hand the oil market is often very dependant on fundamental analysis and any sudden information could change the present situation significantly.
Pic. 1
Omar Arnaout
Omar.arnaout@xtb.com