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United States Oil (USO) higher on expectations that central banks are likely to enact financial stimulus to offset the impacts of the coronavirus outbreak

United States Oil (USO) higher on expectations that central banks are likely to enact financial stimulus to offset the impacts of the coronavirus outbreak

Oil prices rose for a second day on Tuesday on expectations that central banks are likely to enact financial stimulus to offset the impacts of the coronavirus outbreak and growing optimism that OPEC will order deeper output cuts this week.

Brent crude <LCOc1> rose $1.26 per barrel, or 2.4%, to $53.16 per barrel by 0410 GMT. U.S. West Texas Intermediate (WTI) <CLc1> rose $1.24, or 2.7%, to $47.99 a barrel.

Brent and WTI have rebounded somewhat over the past two days from a more than 20% drop from their 2020 peak in January that was caused by signs the coronavirus spread has dented fuel demand.

Since Friday, WTI has gained 7.2% while the front-month Brent contract has climbed 7%, the biggest two-day percentage gains for both contracts since prices snapped back after the missile attacks on Saudi Arabian oil facilities in September 2019.

“Oil prices got their groove back after the world’s largest economies signalled they will be united in fighting off the economic impact of the coronavirus and on the Russian capitulation in agreeing to deliver deeper production cuts at this week’s meeting,” said Edward Moya, senior market analyst at OANDA.

G7 finance ministers will also discuss this week how to best to cushion the impact of the outbreak on economic growth, French Finance Minister Le Maire said on Monday. That is occurring as other major central banks have promised monetary and fiscal stimulus.

The coronavirus, which originated in China, has spread to more than 60 countries and has killed over 3,000 people globally.

“The coronavirus is still spreading globally and until markets can possibly calculate a return of normal travel and trade, oil will struggle,” Moya said.

With lingering worries over oil demand amid the virus outbreak, several key members of the Organization of the Petroleum Exporting Countries (OPEC) are mulling a bigger oil output cut of possibly 1 million barrels per day (bpd). The previous proposal was for an additional reduction of 600,000 bpd.

OPEC and its allies, a group known as OPEC+, are expected to announce deeper output cuts at their meeting on March 5-6 in Vienna. The group had agreed to cut output by 1.7 million bpd in a deal that runs to the end of March.

Singapore-based analyst Margaret Yang at CMC Markets said the gradual resumption of business activities in China has also supported oil prices.

Brent has found strong technical support at $51 a barrel while immediate resistance levels are at $54.70 and $57.20 a barrel, she added.

Oil stockpiles in the United States, the world’s biggest crude producer and consumer, are expected to rise for a sixth week by 3.3 million barrels, while refined product inventories are forecast to fall, according to Reuters poll.

Technical Indicators

Overall, the bias in prices is: Downwards.

Note: this chart shows extraordinary price action to the downside.

By the way, prices are vulnerable to a correction towards 11.20.

The projected upper bound is: 10.48.

The projected lower bound is: 9.25.

The projected closing price is: 9.86.

Candlesticks

A big white candle occurred. This is generally considered bullish, as prices closed significantly higher than they opened. If the candle appears when prices are “low,” it may be the first sign of a bottom. If it occurs when prices are rebounding off of a support area (e.g., a moving average, trendline, or retracement level), the long white candle adds credibility to the support. Similarly, if the candle appears during a breakout above a resistance area, the long white candle adds credibility to the breakout.
During the past 10 bars, there have been 7 white candles and 3 black candles for a net of 4 white candles. During the past 50 bars, there have been 24 white candles and 25 black candles for a net of 1 black candles.

A rising window occurred (where the top of the previous shadow is below the bottom of the current shadow). This usually implies a continuation of a bullish trend. There have been 7 rising windows in the last 50 candles–this makes the current rising window even more bullish.

Three white candles occurred in the last three days. Although these candles were not big enough to create three white soldiers, the steady upward pattern is bullish.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 24.9742. This is not an overbought or oversold reading. The last signal was a buy 0 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 34.66. This is not a topping or bottoming area. However, the RSI just crossed above 30 from a bottoming formation. This is a bullish sign. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 0 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -116.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a sell 5 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 2 period(s) ago.

Rex Takasugi – TD Profile

UNTD ST OIL FUND closed up 0.470 at 9.920. Volume was 81% above average (neutral) and Bollinger Bands were 34% wider than normal.

Open     High      Low     Close     Volume___
9.670 9.920 9.540 9.920 41,386,884
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 10.51 11.61 11.71
Volatility: 53 35 41
Volume: 34,529,728 24,510,510 26,376,402

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

UNTD ST OIL FUND gapped up today (bullish) on normal volume. Possibility of a Runaway Gap which usually signifies a continuation of the trend. Four types of price gaps exist – Common, Breakaway, Runaway, and Exhaustion. Gaps acts as support/resistance.
UNTD ST OIL FUND is currently 15.3% below its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of USO at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on USO and have had this outlook for the last 32 periods.

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S. Jack Heffernan Ph.D. Economist at Knightsbridge holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Crypto, Mining, Shipping, Technology and Financial Services.