Fibonacci retracement, the channel, and the volume. What can we learn from them about the next price move?
Technical Picture of Crude Oil
Let's start today’s analysis by recalling the technical situation at the time of the publication of the last Oil Trading Alert:
(…) What paused the bulls?
(…) crude oil climbed to the upper line of the very short-term purple rising wedge, which woke up the bears and encouraged them to act – not only before yesterday’s session closure, but also earlier today.
(…) the commodity extended losses and slipped to the first Fibonacci retracement based on the entire recent upward move.
(…) What could happen if the bulls fail?
We’ll likely see a test of the green support zone created by the 38.2% Fibonacci retracement based on the recent entire upward move and the previously broken early-Mar. peak. However, if the bears manage to invalidate the earlier breakout above the March high, we could also see a test of the barrier of $80.
From today’s point of view, we see that the situation developed in accordance with the pro-declining scenario and the bears reached the first mentioned target at the end of the previous week.
Thanks to last week’s drop, the price of black gold also approached the barrier of $80, hitting an intraday low of $80.30 on Thursday. On the following day, the commodity started the day with the red gap, which translated into another downswing.
Despite this move, the price didn’t hit a fresh low, but approached the lower border of the very short-term blue rising trend channel (marked on the daily chart), which together with the 38.2% Fibonacci retracement and the declining volume (that accompanied recent red candles) suggested that the bears might lost interest in pushing prices lower in the coming day(s).
As it turned out, this assumption was correct, and crude oil bounced off the above-mentioned support area during yesterday’s session.
Thanks to this upswing, the commodity closed the first red gap, which lured even more buyers to the trading floor and translated into further improvement in the following hours.
As a result, light crude climbed to an intraday high of $82.48 and approached the lower border of the red gap ($82.53-$82.73) formed on Mar.20.
Despite this improvement, the bulls didn’t manage to push the price higher, which triggered a pullback and a daily closure under the previously broken upper border of the red rising wedge.
What does it mean for the commodity?
On the one hand, such price action looks like a verification of the earlier breakdown under this line and could encourage the bears to show their claws once again – especially when we take into account the sell signals generated by the daily indicators.
However, on the other hand, we should keep in mind that yesterday’s upswing materialized on a visibly higher volume (compared to previous days), which suggests that the bulls could regain strength after the recent declines. In this case, another attempt to move higher and come back above the upper line of the rising wedge can’t be ruled out.
Summing up, although oil bulls bounced off important very short-term support area during yesterday’s session and have an interesting ally on the 4-hour chart, it seems that yesterday’s closure and the above-resistance line may determine the future of the price of black gold. Therefore, today's closing of the session can give us very valuable clues about the next move.
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See you tomorrow.
Anna Radomska