On Wednesday, crude oil gained 1,25%, but do oil bulls really have reasons to be happy?
Technical Picture of Crude Oil
Let’s start today’s analysis by quoting the last article on crude oil:
(…) light crude reached the first downside target described in yesterday’s article.
The combination of these strong supports mobilized the buyers to close ranks and take action.
As a result, the price rebounded and finished the day above both supports, invalidating the earlier tiny breakdown. This is a positive development, which suggests that the bulls may want to go even higher during today’s session and regain at least some of the lost points.
If this is the case, (…) light crude could re-test the strength of the mentioned earlier upper border of the blue trend channel and check if oil bears still have an appetite for lower prices.
If they manage to fend off the bulls once again and keep their recent allies in power, the chance of further southward movement increases significantly - especially if we take into account the sell signals generated by the daily indicators.
From today’s point of view, we see that the situation developed in line with yesterday’s assumptions and crude oil moved to the north during Wednesday’s session.
As you see on the charts, after the market open, crude oil bounced off the lower border of the purple rising wedge and the previously broken red zone (seen on the first broader chart), which triggered further improvement and an upward move that took the commodity not only above the upper border of the blue channel, but also slightly above the barrier of $80 (just as expected) in the following hours.
Although black gold hit an intraday high of $80.67, oil bulls didn’t manage to hold gained levels, which caused a pullback that took light crude not only below the barrier of $80, but also under the upper line of the blue channel.
In this way, crude oil invalidated the earlier breakouts, leaving on the chart white candle with a prolonged upper shadow, which confirms oil bears involvement and determination around the mentioned psychologically important level of $80.
Additionally, yesterday’s increase materialized on a visibly lower volume than Tuesday’s decline, which doesn’t bode well for the bulls, signaling that they may not be as strong as it seems at the first glance.
What’s next?
Considering yesterday’s price action and combining it with the sell signals generated by the daily indicators, it seems that further deterioration is just around the corner.
If this is the case, and light crude extends losses from here, the first downside target for the sellers would likely be the lower border of the purple rising wedge (currently at around $78.30) once again.
What could happen if it is broken?
In my opinion, the next target for the bears would likely be the support area created by the lower border of the blue channel, the 50% Fibonacci retracement (based on the Feb. upward move) and the green supportive gap ($76.22-$76.42).
If it is broken, we’ll likely see a test of the 38.2% Fibonacci retracement (based on the entire mid-Dec.-Feb upward move). The next stop for the bears could be the 50-day moving average and the lower border of the black rising trend channel, which are slightly above the 50% Fibonacci retracement.
Summing up, yesterday, we saw another unsuccessful attempt to break above the upper border of the blue channel and the barrier of $80, which doesn’t bode well for the bulls. Taking into account Wednesday’s invalidation of the breakouts above these resistances, it seems that further deterioration is just around the corner.
If you’d like to know what the current technical picture of copper is or to find out what arguments the bulls have or what allies do the bears have, I encourage you to subscribe to Oil Trading Alerts, where you’ll find the answers to these (and many other) questions.
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See you tomorrow.
Anna Radomska