As oil rallies toward $50, traders taking profits

Published Wed, May 18 20163:35 PM EDTUpdated Thu, May 19 20169:35 AM EDT

After a pause to start the month, this week U.S. crude oil prices have resumed their monster rally from $27 a barrel, which began in February, putting $50 within striking distance. Will the half-century mark, which stymied crude last year, put an end to this epic comeback? Most traders, especially those who make a living studying charts, seem to think it will. Source: Brian Kelly Capital "If indeed this is the fifth and final wave higher, then a plausible target is between $50-$51," Brian Kelly, founder of Brian Kelly Capital, wrote in a recent research note describing an Elliott Fifth Wave technical pattern used to forecast reversal points. The money manager states that in commodity rallies "the final leg higher tends to be a swift and aggressive push," and from there, the trend often turns south. Read More $50 oil is Goldilocks gift to Janet Yellen In fact, as oil approaches resistance, Kelly would be looking to take a short position, particularly if a reversal in prices materializes following any news of a reduction in crude production. The key catalyst is "bad price action on good news," he added. Like Kelly, Oppenheimer's Ari Wald also predicts that oil could tread water from here. "For the price of WTI crude oil, this year's breach of a multiyear downtrend has shifted oil's trend to a sideways range, by our analysis," Wald, who's the head technician at the firm, wrote in an email to CNBC Pro. Source: Oppenheimer "We see resistance at $51 and support at $42. Action should be similar to the wide trading ranges for oil prices that occurred in the 1980s and 1990s, in our view," he stated. Jonathan Krinsky, chief market technician at MKM Partners, says he doesn't have "any great conviction on crude" either: "WTI crude continues to improve on a short and medium-term basis. The long-term trend remains bearish, although it is moving towards a neutral trend. There is good resistance in the $49-$50 range, which was the area of the failing rallies in August-November 2015. There should be good support in the $43-$45 range. If looking to buy, we would be inclined to wait for a pullback to that support area rather than chasing it in the $49-$50 range." Other technical analysts like Mark Newton, founder of Newton Advisors, also said the $50-$52 level in crude may put a lid on the rally, at least in the next two to three weeks. "For traders, it's right to take profits on trading longs at $50 or above within a three-weeks time," he said, explaining that a number of short-term momentum indicators are pointing to "overbought" territory.

Nicky Loh | Bloomberg | Getty Images

After a pause to start the month, this week U.S. crude oil prices have resumed their monster rally from $27 a barrel, which began in February, putting $50 within striking distance.

Will the half-century mark, which stymied crude last year, put an end to this epic comeback? Most traders, especially those who make a living studying charts, seem to think it will.