Something bullish, something bearish. Is this the end of increases in black gold?
Technical Picture of Crude Oil
In today's analysis, we'll be taking a deep dive into the new record in black gold price and its long-term picture.
From today’s point of view, we see that although crude oil moved higher in the previous month and hit a fresh high of $87.67, the bearish engulfing pattern formed in Oct. 2023 encouraged the bears to show their claws.
As a result, the commodity pulled back, creating another pro-declining candlestick formation in this area- the shooting star, which triggered further deterioration in May.
Additionally, last month’s decline materialized on higher volume, which highlighted the sellers' involvement in correcting the previous upward move.
How did this price action affect the medium-term picture?
Let’s take a closer look at the weekly chart.
From this perspective, we see that last month’s increase took light crude not only to the above-mentioned space of the pro-bearish formation but also to the long-term red declining resistance line based on the 2022 peaks.
As you see, although the bulls moved above it, the increase was temporary and translated into a reversal that took black gold not only below this key resistance line but also under the previously broken upper border of the purple rising trend channel.
This bearish development triggered further deterioration, which caused a test of the lower line of the mentioned channel in the following weeks. Thanks to this decline, the bears also corrected 50% of the earlier 2024 upward move and tested the green support zone created by the 50% Fibonacci retracement and two bullish engulfing formations (marked with green ellipses on the weekly chart).
Although this important supportive area encouraged the bulls to fight (and brought an invalidation of a small breakdown under the lower line of the mentioned purple rising trend channel) in the previous week, it seems that the buyers have lost their strength considering the price action that is taking place this week.
What slowed the bulls' march north?
Let’s focus on the short-term chart and look for the answer to this question.
On the daily chart, we see that the recent rebound took black gold to the resistance area (marked with the red ellipse) created by the upper border of the red declining trend channel, the May peak, the previously broken barrier of $80, and the 200-day moving average.
Although the buyers broke above it during yesterday’s session, they didn’t manage to hold gained levels, which translated into a pullback and a daily closure under all the mentioned resistances.
In this way, the commodity invalidated the earlier tiny breakouts, which, together with the high volume which accompanied yesterday’s red candle, increases the probability of further deterioration in the coming days.
How low could black go?
In my opinion, the first downside target would be the green gap ($78.74-$78.92) formed on Friday. Yesterday, the bears tested this support, which triggered a rebound, but taking all the above into account, it seems very likely that we’ll see a re-test of this target in the very near future (maybe even later in the day).
What could happen if it is closed?
In my opinion, the next target would be the previously broken 61.8% Fibonacci retracement or even the May low of $76.70.
Nevertheless, at this point please keep in mind that this area is currently supported by the bullish hammer formed on May 15, which is slightly above the key support zone based on the green gap from the beginning of Feb. 2024, which was strong enough to stop the sellers many times in the past.
Therefore, in my opinion, only the closure of this gap could open the way to lower prices.
Summing up, although the bulls managed to break above the upper line of the short-term declining trend channel during yesterday’s session, this improvement was only temporary. The combination of resistances lured the bears to the trading floor and translated into a decline that invalidated earlier tiny breakouts. Taking this negative development into account, it seems more likely than not that further deterioration and lower prices of black gold are just around the corner.
If you’re not yet on our free mailing list, I strongly encourage you to join it - you’ll stay up to date with our free analyses that will still put you ahead of 99% of investors that don’t have access to this information. Join our free oil newsletter today.
See you tomorrow.
Anna Radomska