Santa’s rally for crude oil?

West Texas US Crude Oil (CL) futures are trying to break resistance at 73 and a Santa Claus rally appears based on annual seasonality data for the past 21 years.

Seasonality analysis has worked well for West Texas crude oil (CL) futures this year. Take a look at the comparison between Seasonax’s seasonality chart (upper pane) (based on 21 years of data) and crude oil futures (lower pane) below:

Analysis of the seasonality of crude oil in 2021

We can observe that after the brief consolidation in January, a rally started in February followed by a decline in early March. Then the rally started from mid-March to June. A decline began from June to August (annotated in pink). the the direction was consistent with the seasonality graph from january to august.

The anomaly stood out from September to mid-October as framed in yellow where crude oil futures started a strong rally above previous resistance as the seasonality chart consolidated over of this period.

A sharp correction in crude oil futures that started from October through December has been aligned with the seasonality chart. Since the price of crude oil and the stock market have exhibited a relatively high correlation since November, as evidenced by the deterioration in the scale of the stock market, it makes sense to pay attention to the general movement of the market.

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In December, a double bottom trend can be seen in the seasonality chart, as crude oil futures had a higher low as a test of the previous sales high in early December.

Based on the seasonality chart, crude oil is expected to start a rally after the double dip through early January next year. It looks like a Santa Claus rally for crude oil futures is underway based on the current price, which lines up with the seasonality chart.

Wyckoff Analysis Methods for Crude Oil Futures

While the seasonality chart favors a Santa Claus rally in crude oil futures, analyzing price and volume is critical to looking for confirmation with Wyckoff’s analytical methods.

In June, crude oil futures rose sharply after breaking out of 67 and peaked at 76 after hitting a buy high. Then a behavior change bar, which was the biggest bearish bar since the onset of the ascending wave, followed by a character shift (the largest descending wave) tested the axis line where the previous resistance became support at 65.

From there, a trading range between 65-76 could be expected according to Wyckoff methods. A secondary test at 62 in August acted as spring action from the previous low, followed by a sign of a pickup to peak at 85, then eventually turned into a bullish push as it failed to commit to the above resistance around 77.

After the failed engagement above 77, crude oil futures began a sharp correction with supply increasing back to the 62-65 support area of ​​the trading range. . The bearish wave with a high supply level has been tested over the past two weeks with a decrease in supply and a higher low, which is an encouraging sign for a bullish case.

If crude oil futures break above 73, it is expected to test the resistance zone between 75-77 followed by 80, which could be Santa’s rally for crude oil futures. Otherwise, it could come back to test the swing low near 65 to consolidate further between the 65-73 trading range.

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This article originally appeared on FX Empire

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Steve R. Hansen