A Very Rare Setup: Who Will Win The Tug Of War In The Oil Market?

There has been a tug of war in the oil price over the past two weeks. Due to a very rare setup in the market, the oil price has traded in a very narrow range as traders fight it out to see who will win control… the BULLS or the BEARS. My bet is on the bet is on the bears. Amazingly, the oil price is literally stuck right between two critical technical levels.

Ever since the oil price peaked at $77 at the beginning of October, it has fallen $25 and is now trading in a tight volatile range between $50-$53.  As we can see in the chart below, the oil price dropped to $50 at the end of November and now has been trading up and down with no clear direction:

Oil Price Daily Chart (Each candlestick = 1 day of trading)

Even though the oil price touched $54 for a few days, it has mostly been trading in a tight $3 range. In looking at this daily chart, we have no idea why the oil price is behaving in such a way. However, if we look at the longer-term monthly chart, we can see the apparent reason why. The oil price has been pushed between the 50 Month Moving Average (BLUE) and the 300 Month Moving Average (ORANGE):

Oil Price Monthly Chart (Each candlestick = 1 month of trading)

If you look at the magnified view, you will see that the oil price that closed today at $52.58 remains between these two moving averages. The large red candlestick shows the decline in the oil price in November as each candlestick represents one month of trading. So, the current candlestick that looks like a Cross (called dogi) is for the first two weeks of trading in December. Thus, the reason the oil price in the first daily chart above hasn’t moved from the narrow range can be found by looking at the monthly chart.

It is a rare occurrence for two monthly moving averages to meet together and even more extraordinary when the oil price is trading between them. Now, if we look at the oil chart a week ago (Dec 7th), it looks almost the same:

Oil Price Monthly Chart

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