Oil has been on fire lately with bulls steadily buying each moderate dip in the commodity.
On Thursday, West Texas Intermediate crude was up more than 5% on hints of an OPEC decision to extend their production cut into April.
Crude oil prices caught a boost last month when the deep freeze hit Texas and other oil-producing areas, which temporarily halted or slowed production.
Combining these recent events with the fact that the global economy is champing at the bit to get back to normal, oil also is being looked at as a reopening play.
Stocks like Royal Caribbean (RCL) - Get Royal Caribbean Group Report, American Airlines (AAL) - Get American Airlines Group, Inc. Report, Boeing (BA) - Get Boeing Company Report, mall stocks and others have all been catching a bid for months now on the premise that we’re on the cusp of a major economic rebound. So too has oil.
If that is the case, then oil too should remain in a buy-the-dip state, although it does have other critical factors to consider (mainly production).
In any regard, let’s look at the charts.
In the fourth quarter, oil prices looked like they were in trouble. The commodity had just broken the prior month’s low at the end of October and started November with a wave of selling to fresh multi-month lows.
But in that very same session, oil posted an epic reversal. It closed higher by almost 3% on the day after falling 6% at one point in the session and gave traders a bullish engulfing candle.
That set the tone for the months to follow.
Since then, oil prices have been riding the 10-day moving average higher, with temporary breaks to the 21-day moving average being bought aggressively.
As recently as Wednesday, oil prices were perched on this key moving average. Following a solid close, the commodity is again racing higher on Thursday.
It’s now sniffing out the prior 2020 highs at $65.65. Less than $1 from there now, let’s see what kind of reaction that gives us should oil get there.
If it’s met with selling pressure, first see if a dip to the February highs near $63.50 is support. Below puts the 10-day moving average in play.
For now, the 21-day moving average is a dip-buying opportunity until proven otherwise.
Above $65.65 could put the 361.8% extension in play up near $70. Remember, a strong move in crude could be bullish for stocks, too.