Technical Analysis – WTI oil futures overbought but 90 level still in focus

WTI oil futures (March delivery) are marking their fifth consecutive bullish week. Having fully recovered from November's sell-off, the price managed to print a new seven-year high at 86.77 on Wednesday but a close above the previous peak of 85.39 seems to be a tough job for now.

The RSI and the Stochastics are warning that the prolonged rally is overstretched and a downside reversal should not be a big surprise in the short term. Yet, the indicators are still fluctuating above their 70 and 80 overbought levels respectively and have yet to show any convincing signs of weakness. Hence, upside pressures could persist for a bit longer before the next bearish correction occurs.

On the upside, there is no major obstacle until the 90.00 round-level, last seen in September 2014. Additional gains from here could test the 94.00 – 96.00 region before all attention shifts to the 100.00 key psychological number.

Otherwise, a backward move below the nearby former resistance of 84.45 could immediately pause within the 83.00 – 82.00 zone, where the supportive red Tenkan-sen line is positioned. Then, a step beneath the 81.00 handle could produce a more aggressive decline, potentially towards the 77.38 restrictive region, unless the 20-day simple moving average (SMA) at 79. 38 comes to the rescue.

Summarizing, the five-week rally in WTI oil futures could slow its pace in the coming sessions as overbought signals flash red, but the price may first push for some extra gains.  

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