We could summarize yesterday’s session as an expected change of seats. Why?
Technical Picture of Crude Oil
In yesterday’s article on black gold, you could read the following:
(…) the price of light crude tested the strength of the barrier of $80, hitting an intraday high of $80.85. Despite this improvement, the buyers didn’t manage to hold gained levels, which caused a pullback that took the commodity below this psychologically important level.
As a result, a prolonged upper shadow appeared on the chart, signaling, that the bears might be more active in this area (despite the loss of very valuable allies mentioned above).
Are there any technical factors left on their side?
Yes.
Firstly, the sell signal generated by the Stochastic Oscillator remain in the cards.
Secondly, visible negative divergences between the RSI, the CCI, the Stochastic Oscillator and the price of black gold, which suggests that the space for gains might be limited and reversal in the coming days can’t be ruled out.
Additionally, analyzing the changes on the weekly chart, I summarized them as follows:
(…) In my opinion, despite the buyers' Friday’s success, the road to the north will only be open for good when the bulls manage to successfully break the psychological barrier of $80 (as a reminder, the barrier of $70 effectively stopped the bearish appetite for lower price levels, which shows the importance of this type of support/resistance for market participants).
From today’s point of view, we see that the barrier of $80 turned out to be too big a challenge for the buyers during the first session of this week (in line with yesterday's assumptions).
As you see on the daily chart, Friday's enthusiasm carried over to the start of Monday's session and resulted in the formation of a pro-growth gap. This positive sign encouraged some bulls to push the price higher, but as it turned out quite quickly, they didn’t even reach Friday’s peak (not to mention forcing it).
This show of weakness lured the bears who showed their claws and pushed the commodity not only to the opening price, but also below it, which translated into a closure of the gap created at the beginning of the day. This negative development triggered further deterioration in the following hours, which finally resulted in a decline to an intraday low of $78.56.
Although light crude moved slightly higher before the end of the day, black gold closed Monday’s session not only under the barrier of $80, but also below the previously broken upper border of the blue rising channel.
In this way, light crude invalidated the earlier breakout, which doesn’t look bode well for the bulls – especially when we factor in the fact that thanks to yesterday’s price action, the beard gained four important allies: another daily closure under the barrier of $80, the above-mentioned invalidation of the breakout, an invalidation of the breakout above the Jan.29 peak and the pro-declining candlestick formation (dark cloud cover) marked with the red ellipse.
The only positive in the bulls' favor is the volume, which, although quite large (the highest level of the bears’ involvement since Feb.23), turned out to be smaller than the one that appeared on Friday's session.
Nevertheless, all the above-mentioned technical factors combined with the current position of the indicators suggest that further deterioration may be just around the corner.
What could happen if this is actually the case and crude oil extends losses from here?
I think that the best answer to this question (which would be a bearish scenario for black gold) we’ll find on the bigger daily chart below.
From this perspective, we see that yesterday’s drop invalidated the breakout above the previously broken red zone, which suggests that we could see a decline to at least the 200-day moving average and the lower border of the purple rising wedge in the coming days.
However, if this support is broken, the way to the 38.2% Fibonacci retracement (based on the entire mid-Dec.-Feb upward move) will likely be open. 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.
Nevertheless, considering a potential breakdown under the lower line of the purple rising wedge, it seems that we could see a decline even to around $73, where the size of the downward move would correspond to the height of the purple rising wedge.
Summing up, crude oil reversed and declined, invalidating the earlier breakouts (above the barrier of $80, the Jan.29 peak and the upper border of the blue rising channel), which doesn’t bode well for the bulls in the coming days and suggests that further deterioration might be just around the corner.
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See you tomorrow.
Anna Radomska