The West Texas Intermediate Crude Oil market has dropped towards the $63.25 level, only to turn around and show signs of strength again. The $65 level above is a large, round, psychologically significant figure and of course where we have seen selling pressure. The past couple of days has seen a significant amount of selling, but at this point in time, we are still in a bullish phase. However, recently we have seen a lot of noise in this market as we are forming a significant megaphone pattern. That being said, what we are looking at is a market that has been grinding to the upside in a relatively straightforward manner, but recently we have seen a lot of choppy behavior, showing “cracks in the ice” of the uptrend.

If the market does turn around a break down below the bottom of the candlestick for the trading session on Wednesday, then we could go down towards the bottom of this megaphone pattern, but I think that there would be a lot of support at the bottom of this megaphone, near the $60 level. The $60 level course is a large, round, psychologically significant figure, and as a result, I think that breaking down below there would be a major shift in attitude, but at this point in time, I think we are simply trying to grind back and forth and make a longer-term decision.

If we were to break above the highs from the Monday session, then we could go looking towards the $70 level where we have seen a massive amount of selling pressure in the past. All things being equal, this is a market that I think eventually has to make a turnaround due to the fact that demand just simply is not there, despite the fact that people are starting to price and near perfection when it comes to the recovery. As the recovery of course would be good for crude oil, but we have doubled the price and therefore I am sure we have gotten ahead of ourselves. $70 is a crucial barrier for longer-term momentum, so if we break above there then it is hard to tell where we end up. In the short term though, I do think that rallies will continue to be sold at the first signs of exhaustion.

(Click on image to enlarge)