Is a major move coming for crude?

Downtrend doldrums

Despite the recent rally, crude oil has made lower highs in recent weeks, as risk-on and risk-off sentiment has largely favoured the bears. Crude is a highly volatile asset that can decline rapidly over short periods, so traders are often quick to exit their positions at the first sign of trouble.

Growing confidence?

The Conference Board revealed on August 27 that its U.S. Consumer Confidence Index rose to 103.3 in August and was revised upward to 101.9 in July. While the data was mixed across different age cohorts, it’s likely no coincidence that the confidence boost occurred alongside a meaningful decline in long-term interest rates.

With Treasury yields and the U.S. dollar dropping recently, both support economic growth, as a weaker greenback makes U.S. exports more attractive, and lower interest rates make financing more affordable. Add it all up, and increased consumption could be bullish for crude over the medium term.

What are the key levels to watch?

The downward-sloping white line highlights how crude confronts resistance in the $77 area. Additionally, $80 has been a tough level to overcome, so turning both into support is necessary for a sustained uptrend.

To that point, the 50-hour moving average (the blue line) is a crucial variable. Crude fell below it on August 27, and after the last breakdown, it became material resistance in mid-August during a roughly $8 decline.

A trading plan

Given the data above, the short-term battle is between the 50-hour MA near $76 and declining resistance near $77. Caution is warranted when crude trades below the 50-hour MA, as a narrowing of support and resistance could produce a large move in either direction.

If the breakdown persists, more aggressive traders may want to consider a short position if the 50-hour MA becomes confirmed resistance.