Bearish formations, invalidations, and potential scenarios.
In today’s oil price forecast, I decided to share with you my insights from today’s Oil Trading Alert. Have a nice read!
Technical Picture of Crude Oil
Let’s start today’s analysis by quoting the last Oil Trading Alert:
(…) a pro-declining candlestick formation appeared on the 4-hour chart (a shooting star), which together with the mentioned orange gap, an invalidation of the earlier breakout above the Monday’s high, the bearish engulfing pattern (still remains unneutralized) and the current position of the 4-hour indicators (the Stochastic Oscillator and the CCI generated sell signals) suggests that further deterioration is just around the corner.
Therefore, if oil bears show their claws once again, we’ll see at least a test of the green supportive gap ($74.25-$74.56) that appeared on the daily chart (Asian trading hours). If they manage to close it, it would be a negative signal that will likely translate into a test of the upper border of the green rising channel (marked on the 4-hour chart).
If the sellers manage to push the price below it, we’ll likely see a realization of yesterday’s pro-declining scenario:
(…) What could happen if the oil bulls disappoint?
If the buyers let their opponents to finish the day under the upper line of the green channel, we’ll likely see a test of the previously broken upper border of the black rising channel, which is the last stop before the next support zone created by the previously broken Nov.7 intraday high and the Jan.3 low (around $72.70-$73.13).
From today’s point of view, we see that the situation developed in line with yesterday’s assumptions and crude oil moved to the south after Wednesday’s alert was posted.
Thanks to this decline, crude oil futures not only invalidated the earlier breakout above the upper line of the green channel but also slipped below the upper border of the black rising channel and closed the day under these important supports.
This negative technical development translated into further deterioration (Asian trading hours), which took the price to our next downside target.
As you can see, the combination of the above-mentioned supports encouraged the buyers to act, but despite their mobilization, crude oil futures are still trading under both upper lines of the mentioned channels. Therefore, in my opinion, as long as there are no invalidations of yesterday’s breakdowns, the way to the north is not wide open.
At this point, it is worth noting that the 4-hour CCI and Stochastic Oscillator generated buy signals, giving the bulls two reasons to act, which could translate into an attack on the mentioned lines (which serve as the nearest resistances at the moment) in the following hours.
Nevertheless, even if we see further improvement, technical factors suggest it may be quite short-lived.
Why?
Firstly, the bearish engulfing candlestick formation from Monday still remains unneutralized.
Secondly, yesterday’s pullback formed another pro-declining formation – the shooting star.
Thirdly, the invalidation of the breakout above Monday’s peak and its negative implications remain relevant.
Fourthly, negative signs emerge from the daily chart.
What do I mean by that?
Let’s take a closer look at the chart below.
From this perspective, we see that yesterday’s price action formed a bearish engulfing candlestick formation slightly under the important resistance zone, which doesn’t bode well for the bulls – especially when we factor in the sell signals generated by the daily CCI and the Stochastic Oscillator.
Therefore, in my opinion, even if the buyers push the price higher and climb above the mentioned borders of both very short-term channels, the space for gains seems very limited, and a bigger move to the downside in the coming days should not surprise us.
Before we summarize today’s alert, please keep in mind that if the bulls do not manage to come back above the upper borders of both above-mentioned channels, their opponents will likely re-test the nearest support area or even hit a fresh low before they give the buyers a chance to correct the recent declines. Therefore, keeping an eye on these resistances and bulls’ behavior can give us valuable clues about the next very short-term move.
Summing up, crude oil futures declined on Wednesday, creating not only another pro-declining candlestick formation (the shooting star) on the 4-hour chart but also the bearish engulfing pattern on the daily chart. Thanks to this price action, the futures invalidated the earlier breakouts above the black and the green rising channels (as seen from the 4-hour perspective), which doesn’t bode well for further rally. Yes, the 4-hour indicators generated buy signals, which could encourage oil bulls to push the price higher, but it seems that it will be only a very short-term move. However, all the above-mentioned negative developments suggest that further deterioration in the short term is just around the corner, and a bigger correction should not surprise us in the coming week.
Have a profitable day, and see you tomorrow.
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Anna Radomska