Crude Oil fails to expand the range below the August low, which opens the door to potential strength ahead.
Watch the Key Range
Crude Oil [NYM:CLV14] has spent the last three weeks trading within the boundaries of a clear range that spans from 92.50 to 96.00. Those two levels, along with the midpoint of the range at 94.25 make up the key levels to watch as we progress through the week. This range has withstood attacks at both support and resistance over the last few weeks, but each time the defending parties have successfully volleyed price the other way, which has kept prices within the trading range.
The good news is the more price trades within a range, the more energy is being generated for the next phase of expansion. It is this price range expansion, or a failure to expand the range, that has an immense impact on future price movement. For this reason, professional traders often watch price ranges like hawks.
Failed Range Expansion
Monday’s session saw the first attempt at range expansion, as selling pressure pushed price through support at 92.50. The problem is, most of the selling pressure came during overnight and pre-market trading hours, meaning the overnight inventory was heavily short. When Crude failed to establish acceptance below 92 after the opening bell, those pre-market bears were forced to cover their shorts, which caused a squeeze back above 93 into the close.
Why is this important? Well, failed range expansion is a major sign of rejection, and can oftentimes spark significant reversals in the opposite direction. What’s more, the range low of 92.50 is also the August low, which means the market rejected price levels below last month’s low (for now), indicating the potential to rally to the August high of 97.75 over the course of the month.
The Game Plan
Bulls will be looking to defend pullbacks into support between 92.25 and 92.50 for a shot at reaching the top of the range at 96, with scaling points at CVPOC at 93.53 and the center of the price range at 94.25. Beyond 96 likely sees the 50% range expansion target at 97.75, which is also the August high.
Bears will be looking to overwhelm support at 92.50 for a shot at downside expansion targets at 90.75 and 89, and will also look to defend initial moves into 93.70 and 94.50.
Cheers!
Frank Ochoa
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