WTI Oil rebounds to initiate a base formation

Oil bears had a fantastic time last quarter, when WTI Crude prices dived from $75 to near $40. This staggering drop caught almost everyone by surprise.

Since the start of year, however, the oil contract has been on a rally. Prices rebounded nearly 25% to $52.

The question now is whether this recovery rally is just a ‘dead cat bounce’, or, the start of medium-term advance. Technically, the bear trend is not yet over. Prices are just unwinding the oversold sentiment accumulated from last year’s drop. There is resistance noted at $55-60, which may impede the current recovery rally. From the risk-reward perspective, however, the medium-term directional bias is to the upside because the WTI oil, if trading below $40, may be discounting too negative an economic scenario. I expect a period of base building here. Watch to initiate trading buys on setbacks.

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