Oil was yesterday the most important topic. First there was a report of a Saudi pipeline explosion. Right after that we had a very strong reaction to that news. The report was denied, but oil climbed above 110$. Right now, so a day after, there is a correction and oil is around 107$.
I wanted to show you an interesting thing. You might think that when there is a panic or euphoria and price is just exploding higher, there are no rules to that kind of moves.
Well, when you trade with Fibonacci, you can manage position even when there is such a strong and unexpected move. This is only a matter of choosing the right swing to trade. Why move ended above 110$? Let’s analyze these two charts below.
On the first one I marked Fibonacci Retracement and extension lines for swing from October 4th to November 17th (points A and B).
After that swing there was a correction to the 38.2% retracement line and long move in the range.
Next there was a break above 103$, which started current rally. I mentioned it in posts Oil is moving up very fast and Happy bulls from WTI oil. Few days ago oil climbed above 109$. This is area below 127% extension, which on many occasions is a strong resistance.
To get more accurate results, we can draw extension lines for recent major swing, so for swing from December 19th till January 4th. You can see on chart (this is also daily chart) that move ended exactly at 161.8% extension line.
This is why I like to trade with Fibonacci numbers so much – they work well even when there is a panic among investors.
What is next for oil? Right now there is a correction, but it is still very possible that oil may be testing important resistance at 113$, which you can see marked on weekly chart below:
There will be another post about possible scenarios on WTI oil. For today I just wanted you to learn more from yesterday’s price action.