Tradable assets normally have some sort of retracement in the middle of a trending move. Cycle traders would say the asset is trading into a mid cycle low. Oil trades in 30-50 day cycles. I expect that since this is the first cycle out of a yearly and intermediate cycle that it will take longer to complete its move. My expectation all along has been a rally to around $56 on the Dec. Today marks day 15 of this new daily cycle, so I am thinking that this will be a mid cycle retracement.
I have stated before that I thought oil would find some resistance near the 200 day moving average at $52.50, and oil made it to $52.60. Now we are having a mid cycle correction. This is why I had not pushed up the stop from $48.....because I did not want to be stopped out of the position from a mid cycle correction.
As of this writing, oil has made a 38.2% retracement. We might even get a 50% retracement, however I doubt it. If price falls below the 50% retracement, we will get stopped out of our position for a small gain.
A retracement such as this does two things. First, it creates a point to set a cycle trend line (green line on chart). This will be an important technical level to follow moving forward.
The second thing the retracement will do is re-set sentiment. Sentiment was about 50% yesterday. This will lower sentiment a few points and set the table for the next leg higher. By the time oil reaches $56, we should reach excessive optimism levels. At that point, we will either exit the trade or push the stop very tight.