Major Crude Reversal: Technicals and Sentiment

Here we are once again. It is the end of August. The start of a new week, a refreshing restart to markets that were in turmoil just a week before.Confidence in securities seems to be brimming as investors end their sell-off that crashed the stock market earlier in the month. As August ends, the Dow Jones Industrial average records its weakest performance in the history of this summer month (months where seasonality patterns typically show an increase in overall demand). The real story is crude oil and the turn around it has managed in the last few days. Throughout the summer months and despite the summer driving, the WTI price fell to sub-$40 price levels. In the past three trading sessions, prices recovered 27% to $48.51 a barrel. Today alone, investors sparked a rally of 7.28% or $3.29. Brent crude oil showed the same gains as it rose back above $50 on positive sentiment regarding fundamental data. Today's movement sent prices above 30-day and 7-day moving averages which still remain below the 3-month trend line. Sentiment is obviously changing, though, as both the natural gas and oil indices beat the losing Dow today. Instead, they each gained a percentage point as ETFs betting on crude oil prices also gained. UWTI, the accelerated bet on WTI price, jumped $0.24, a whopping 20.14% rewarding cheap oil wagers that started below a dollar. Even with all the movement, the stories still surround the benchmark's incline.

Above, WTI is plotted over the past six months showing its initial increase and dive in July. The first thing to notice in the technical indicator charts is the momentum built up over the past two months of bearish activity. These movements and reversals have been supported by unconvincing technical data as volumetric data showed little interest in creating breakthrough surges. MACD crossover points have so far been unconvincing with trends taking at least two months to complete. This reversal seems different. RSI and MACD data show intense turnarounds with oversold signals quickly surpassing the neutral 50 level and the faster MACD line approaching zero as it increases the spread between the slower line. These signals have been supported by high volume levels that almost double that of previous crossover points. Bollinger Bands reveal an impressive phenomenon as well. Over the past week, gains have traversed the gap between the Bollinger bottom and top as markets surge. Sentiment changes, once again, are obvious. The increase in volume alone is enough to convince a trader that this surge is bolstered by a wave of bullish speculation. Events like the specter of an OPEC emergency meeting as well as output levels being adjusted down by the EIA assist the market into transitioning into a bull market phase. There are still some sensitive traders that remain anchored to fundamental data and predict a bearish market until the end of 2015. Nevertheless, the spillover of emotion from the general market correction leaves investors bullish as hopes for gains look likelier as the week continues.