In today’s oil price forecast, I decided to share with you my insights from today’s Oil Trading Alert. Have a nice read!
Important supports in the spotlight. Will they withstand the selling pressure?
Technical Picture of Crude Oil
Looking at the above charts, we see that although crude oil futures extended gains during yesterday’s session, the 38.2% Fibonacci retracement based on the entire recent decline lured the sellers to the trading floor, which translated into a reversal.
As a result, the price temporarily slipped under the previously broken neckline of the reverse head and shoulders formation, but then rebounded, closing the day above this important support.
Nevertheless, yesterday’s drop translated into a lower Friday’s open (Asian trading hours), which created a small pro-declining red gap ($68.56-$68.70), which triggered further deterioration in the following hours.
In this way, crude oil futures slipped under the neckline of the reverse head and shoulders formation, which together with the mentioned red gap and the sell signals generated by the 4-hour indicators doesn’t bode well for the bulls.
Nevertheless, when we take a closer look at the 4-hour chart, we clearly see that the futures started a consolidation (marked with orange) around the mentioned neckline, which suggests that further deterioration will be more likely and reliable only if we see a successful breakdown under the lower border of the formation (at $68.11).
What could happen in this case?
Such price action will likely trigger further deterioration and a re-test of the strength of this week’s low, the green support zone and the blue supportive gap (marked on the daily chart), where the size of the downward move will correspond to the height of the consolidation (the lower orange rectangle).
However, if the bulls close the ranks and manage to invalidate the earlier breakdown under the neckline of the reverse head and shoulders formation and break above the upper border of the orange consolidation, the way to yesterday’s upside target will be open:
(…) yesterday’s moves in both directions translated into a pro-bullish formation – the reverse head and shoulders pattern, which suggests that further improvement should not surprise us
(…) How high could the futures go?
In my opinion, we could see an increase not only to the previously broken barrier of $70, but also a climb to around $70.50, where the size of the upward move will correspond to the height of the head and shoulders formation.
In this area, the bulls will also meet an important resistance zone (marked with red) created by the 61.8% Fibonacci retracement (based on the entire recent downward move) and the Nov.11 peaks.
Connecting the dots, in my opinion, keeping an eye on the neckline of the above-mentioned formation and the borders of the orange consolidation seems to be the key to further profitable trades.
Summing up, crude oil futures failed to break above the 38.2% Fibonacci retracement based on the entire recent decline, which resulted in a slide under the previously broken neckline of the reverse head and shoulders formation. On top of that, the futures started the day with the red pro-declining gap, which together with the current position of the 4-hour indicators doesn’t bode for the bulls. Nevertheless, further deterioration (and a realization of the pro-bearish scenario) will be more likely and reliable if we additionally see a successful breakdown under the lower border of the orange consolidation (seen from the 4-hour perspective). Therefore, keeping an eye on the neckline of the above-mentioned formation and the borders of the orange consolidation seems to be the key to further profitable trades.
Have a profitable day, a wonderful weekend and see you on Monday.
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Anna Radomska