By Tamar Mehr
The pricing of commodities isn’t just a question of consumer supply and demand. It also takes in the perceived expectations of potential disruption in the commodity’s supply. And that is a much more difficult factor to quantify, which is why we sometimes see big pricing swings in reaction to geopolitical news.
The past weekend was dominated by reports of the crackdown in Saudi Arabia, where the government has sacked several ministers and detained many of the country’s princes and its richest businessmen in what has been reported as an anti-corruption investigation. This sent prices in the world’s largest crude oil exporter higher at the beginning of this trading week. If we add the current crackdown to the growing tension between Saudi Arabia and Iran over the Yemen conflict, we can see this could result in more investors pouring into the black gold.
Timing when a potential supply disruption has become a concrete trading opportunity can be difficult to gauge. But it can be simplified by examining the charts for technical elements, and applying the same trading strategy as I do for all other potential trading opportunities.
So let’s start with the higher timeframe trend, as it gives us insight into the overall potential strength of the market. Looking at the monthly chart, we can see a clear series of higher highs and higher lows, indicating we are in a confirmed uptrend.
Yesterday’s candle has closed bearish. In my opinion, a break below the low of this candle, together with the over-extension, could see the market pull back to release some of the latest strong buying pressure.
When we zoom in on the daily chart, we can see that the level we have identified on the weekly chart is clustering nicely with the buy zone.
My plan for this market is to wait for a pullback into this strong level and test it from above. But I need to keep in mind that potentially a resistance level - once broken and re-tested - could act as support. Then, I’ll be looking for a small bullish candle, rejecting this level from above, to signal the potential end of the pullback, and a continuation of this longer-term higher timeframe trend.
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