Article / 22 June 2016 at 1:36 GMT

Global Market Report: Turning bullish on oil as WTI outlook improves

Global Investment Analyst / Rivkin
Australia
  • WTI crude oil is turning bullish and heading towards $55/barrel
  • S&P/ASX200 gains are encouraging, and more S&P500 consolidation is probable
  • The Nikkei has bounced sharply from support
  • Lower spot gold levels are likely in coming weeks
  • Natural gas is targeting $2.90 over coming months
By James Woods

S&P/ASX200 gains ground

On the daily time frame, the S&P/ASX200 continues to move higher towards noted resistance following a test of the noted support zone between 5,160 and 5,100, marked by the 50% and 61.8% Fibonacci retracement levels of the prior rally.

The slow stochastic is now crossing higher from oversold levels suggesting the likelihood of near-term strength however it is not yet enough on its own to suggest declines are complete. In order to be confident an intermediate low is in place we would require a higher low to form above 5,150.

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 The long term outlook for WTI continues to improve, and it is highly likely the price will move higher towards $60/b over the coming months. Photo: iStock

Above current levels, resistance is located between 5,305 and 5,384 marked by previous highs and lows.

S&P/ASX200 daily chart
ASX200 Daily
 
On the weekly chart, the price is now moving higher following a test of support as it traces of what is potentially a large basing pattern.

Longer term while some near-term weakness is expected, given the confirmation of bullish momentum divergence at the February low, we believe a significant low is now in place with higher levels above 5,425 likely over the coming months.

S&P/ASX200 weekly chart
ASX200 Weekly
 
Our outlook remains neutral.

S&P500 futures

On the daily time frame, the S&P/500 has now closed within the noted resistance zone between 2,075 and 2,105 marked by prior highs. Overall the intermediate trend remains up with the formation of a higher low at 2,040 however we now require a higher high above 2,110 to confirm this.

While the recent pullback has allowed momentum indicators to unwind from overbought levels we cannot yet rule out the potential for further consolidation or near-term weakness and a deeper retracement towards support between 2,007 and 1,982 marked by previous highs and lows, as well as containing the 200-day moving average at 38.2% Fibonacci retracement level of the current rally.

S&P500 trendS&P500 Daily

 
Longer term, the trend remains up confirmed by a higher low and higher high. While some near-term weakness is expected, the outlook continues to improve as the price pushes to new highs following the impulsive rally from the February lows.

S&P500 Weekly
 
Our outlook remains neutral.

Nikkei 225 futures

On the daily time frame, the price has now begun to move sharply higher following a test of the support zone between 15,650 and 15,320, marked by lows over the past four months.

The slow stochastic is now also crossing over at oversold levels suggests the likelihood of near-term strength however in order to confirm a change in the intermediate trend to up we would require the formation of a higher low above 15,225.

Nikkei 225 trendNikkei225 Daily

 
Longer term, the weekly chart shows the price initially bouncing higher following a test of the support zone between 15,840 and 15,320 marked by previous highs and lows.

There are no clear signs that recent declines are complete. However we may see a pause or bounce given the significance of this support zone over the prior 12 months.

Weekly Nikkei 225 chart
Nikkei225 Weekly
 
Our outlook remains neutral waiting for a pullback before turning bullish. 

WTI crude oil 

On the daily time frame, the WTI crude price has quickly moved higher following a test of initial support around $46.50/barrel where we find both the 50 and 200-day moving averages as well as the lower boundary of the rising trend channel.

The recent pullback has allowed momentum indicators to unwind with the slow stochastic now beginning to cross higher near oversold levels suggesting declines may be complete and the likelihood of higher levels over the coming weeks.

Initial resistance is located between $48.39/b and $50.92/b, marked by previous significant highs and lows. while further resistance is found between $55/b and $60/b marked by 2015 highs and lows, as well as the upper boundary of the rising trend channel.

WTI trend
WTI Crude Daily
 
Longer term, the WTI outlook continues to improve with the confirmation of bullish momentum divergence suggesting a significant low is in place and highly likely the price will move higher towards $60/b over the coming months.

WTI weekly trend
WTI Crude Weekly
 
We are now updating our outlook to bullish while above the recent low at $46.46/b.

Natural gas futures

On the daily time frame, the price has continued to push higher to be testing the upper boundary of the resistance zone between $2.70 and $2.80 marked by previous highs and lows. While there are no clear signs recent gains are becoming exhausted, momentum indicators remain at highly overbought levels highlighting the growing risk of a pause or pullback from current levels.

Below current levels support is located between $2.50 and $2.40, marked by previous highs and lows as well as containing the 50% & 61.8% Fibonacci retracement levels of the current rally.

Natural gas trend
Natural Gas Daily
 
On the weekly chart, the trend is now up following the formation of a higher low and higher high suggesting the large basing pattern is now complete.

The confirmation of bullish momentum suggests a significant low is in place opening up a move towards $2.90 over the coming months.

Natural Gas Weekly
 
Our outlook remains neutral waiting for a pullback before turning bullish once again.

XAUUSD (spot gold)

On the daily time frame, following an initial push above the spot gold price has now quickly reversed to close below the noted resistance zone between $1,270/oz and $1,303/oz marked by previous highs over the past four months. Momentum indicators are now crossing lower from overbought levels coupled with the false break higher implies the decent probability of near-term weakness over the coming weeks.

Below current levels initial support is located between $1,257/oz and $1,244/oz marked by the 50% and 61.8% Fibonacci retracement levels of the current rally as well as containing the 50-day moving average. Further support is also located between $1,225/oz and $1,208/oz marked by previous lows over the past five months.

Spot gold trend
XAUUSD Daily



















 
Longer term, while the price did reach a new high around $1,315/oz last week, it was not confirmed by momentum indicators leading to the confirmation of bearish momentum divergence and the likelihood of lower levels of the coming weeks.

Overall the rally throughout 2016 has been strong and is likely the beginning of a larger move higher over the coming 12 to 18 months towards the $1400/oz region. As such, we view current weakness as merely corrective.

Weekly gold chart
XAUUSD Weekly
 
Our outlook remains short-term bearish.

– Edited by Robert Ryan

James Woods is a global investment analyst at Sydney-based Rivkin Securities



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