Something old, something new. In a nutshell, that's what today's alert is all about. Are you ready for a new chapter of Oil Trading Alerts?
Quoting our yesterday’s Oil Trading Alert:
(…) the bulls were able to defend the support set by the 61.8% Fibonacci retracement based on the entire May-September upward move.
Additionally, we can see a bullish divergence between the CCI and WTI and a buy signal generated by the Stochastic Oscillator.
While these are undoubtedly positive symptoms, we cannot forget that Friday’s candlestick was formed on lower volume than the one before, which suggests that we should remain vigilant.
An additional factor in not making hasty decisions is the red gap created on Wednesday. In my opinion, its closure may be a credible confirmation that the bulls are strong enough to move north and regain their lost ground.
Looking at the daily chart, we see that the combination of the above-mentioned factors actually inspired the bulls to take action. As a result, Wednesday's gap was closed, which, combined with the buy signals, is tempting to make a decision. But is it as bullish as it might seem? Please pay attention to the volume. Despite another white candle on the chart, the buyers' involvement in shaping it has decreased for the third time in a row, raising some doubts about the bulls' strength.
Additionally, when we look at the four-hour chart, we see that the bears may be about to go into action. What do I mean?
Despite a good start after the US markets’ open, the price has not yet even reached the 38.2% Fibonacci retracement. Additionally, both the CCI and the Stochastic Oscillator remain in their overbought areas, which suggests that a reversal may be just around the corner, especially considering what we've seen in the past.
Similar levels of indicators could be observed on October 20th. What happened in the days that followed? Another bear march to the south has begun. That's why I think that staying out of the market without any open positions is the best option for now because the test of the upper border of the yellow consolidation (marked on the daily chart) may be right around the corner.
If that happens and the bulls show a willingness to fight back (with higher volume), then we'll consider opening long positions. But before that happens…
New , new , new
Ladies and gentlemen, today I open a new chapter in the history of the OTA! Those of you who've seen my analysis before will remember that the entire alert was dominated by WTI. Readers of the Oil Investment Update also had the opportunity to follow XOI's charts and occasionally delve into the analysis of the various ratios that often gave us a hint of the direction of the next oil movement.
Thinking about the new Oil Trading Alerts, I felt like I was missing something, and now I know what it was... there was no analysis of energy companies’ stocks. And why should they be put on the sidings? After all, it's a precious seed of new investment opportunities!
Let's test them and start with BP and Conoco Philips.
BP – The Channel, The Consolidation and an Interesting Formation
So, let's start our discussion today with a long-term chart - it’s important to have a broader context.
In the foreground is the consolidation of several months, which slowed down the ongoing march of the bulls to the north since 2020. Some say all good things must come to an end. But is this really the end of the bullfight?
Let's look at the technical aspects.
What's in it for the buyers? In particular, the above-mentioned consolidation takes place above the green zone created by the 2018 and 2019 tops that was defeated at the beginning of the year. It serves as immediate support, which effectively restrains the sellers from the beginning of the year.
Can they push the price down? Let's see what the technical arguments are on their side and how strong they are.
The first of these is that you can see negative divergences between all three indicators marked on the chart and the stock price. In addition, the CCI and the Stochastic Oscillator generated sell signals by encouraging a sell-off.
And when we look at the chart more closely, we can see that it's quite similar to what we saw in 2018 before the September peak. But before there was any significant movement southwards, buyers tried to attack even higher levels.
Second, based on this chart alone, I think that unless the price falls below the lower limit of the orange consolidation and the bears move below the green support zone, the road south is still closed.
Does the medium-term picture support these claims? Let's check the weekly chart.
The bulls' situation here is not so optimistic. Why? Because the sellers have managed to break below the long-term green support line, which in the classic view of technical analysis is not a good thing.
In addition, as in the first half of last year, BP has dipped below the 50-week average, which, combined with the sell signals generated by the CCI and the Stochastic Oscillator, may lead bears to further tests - the blue support zone based on the May and June lows or even the lower border of the orange consolidation visible on the monthly chart.
Can the bulls expect any short-term supportive signs in the coming week?
Looking at the daily chart, it seems very likely.
First, both the CCI and the Stochastic Oscillator generated buy signals.
Second, the RSI bounced off the sell zone. It's quite an interesting phenomenon because we've already dealt with this kind of situation in March and May. In both cases, this has resulted in strong reversals and price increases, suggesting that history may also repeat itself in November.
Thirdly, yesterday's almost 2% rise has led to the closing of the gap and consequently to the pro-growth formation - the island. This is a positive argument that can be used by bulls to attack higher levels.
Is this a good place to buy?
Personally, I'd hold off on spending the money to buy stock in this place.
But why is that? There are signs and similarities to the past.
Yes, but there's also an open gap where stocks are now, just above it, another – additionally strengthened by the 200-day moving average and the 50-day moving average, as well as decreasing volume despite the price increase. This suggests that the buyers' involvement may not be as high as it might appear at first glance.
Additionally, we should also keep in mind the broken long-term support line and the multi-month consolidation, which in the long run can bring stress instead of easy and quick gains.
Will the technical situation of our next merger be more satisfactory?
Conoco Phillips – The Moment of Truth
And as you can see, the long-term chart looks a lot more optimistic. The company is also moving in a fairly narrow price range, but it is well below the 2022 peak and, most importantly, still above the long-term green support line.
Yes, there are negative divergences between stocks and all visible indicators and the sell signals on the CCI and Stochastic Oscillator, but in my opinion, as long as the mentioned green line holds, bears will not be so easy to move to lower levels.
Will they find an ally on the weekly chart? Let's see.
Stocks have reached the lower border of the green increasing channel, suggesting that the outcome of the battle between buyers and sellers here will decide the direction of the stocks. It is worth noting here that we have already had such situations in May, June, and the beginning of July. In all cases, the bulls won. At that time, however, they were supported by buy signals, which motivated them to fight.
What's it going to be like this time? I think it's time to wait for confirmation before we make any investment decisions.
Can the short-term chart give us more clues? Let's take a look at the daily chart.
From this perspective, we can see that the bulls' arsenal looks much more favorable: buyers have buy signals generated by the CCI and the Stochastic Oscillator on their side, as well as support- the38.2% Fibonacci retracement based on the entire May-November upward move.
Such a combination may stimulate them and lead to an attack on the open red price gap created last week - especially if we take into account an invalidation of a small breakdown under the above-mentioned Fibonacci retracement.
It's also a place to look back. Pretty close to the current price action we could have seen earlier last month. Then, the buyers created a reversal and shot north, forming a supporting island along the way (we've marked these formations with a green circle) and creating a new annual peak.
The only factor I can't ignore at the moment is the low volume, which actually decreased during yesterday's move up. Therefore, in my opinion, as long as the gap is open and the buyers have not confirmed their strength, it is worth remaining an observer of the events and not a direct participant. We don't need the stress.
Well, that's the end of the stock market story for today. I'll be back tomorrow with another batch of tests. Perhaps tomorrow's stocks will bring us a clearer signal.
See you tomorrow.
Anna Radomska