Breakout above short-term line, but is it enough to push the price higher?
Before we analyze the technical picture of Devon Energy Corp., let's see what is interesting has happened on the NYSE Arca Oil Index (XOI) short-term chart.
Let’s start today’s analyze with the quote from the article posted on Dec.20, 2023:
(…) the bulls managed to climb above the first important resistance zone created by the Nov. peaks, the 38.2% and the 50% Fibonacci retracements, which, in combination with the breakout above the upper line of the consolidation (marked on the weekly chart) opened the way to higher levels.
However, at this point, it’s worth keeping an eye on the position of the indicators as the CCI moved to its overbought area, while the Stochastic Oscillator is quite close to doing the same.
What does it mean for the stocks?
That the space for gains may not be as wide open as it seems at first glance. Nevertheless, as long as there are no sell signals, the bulls may want to climb to their nearest target and test the strength of the next resistance zone around 1,912.33-1,915.81created by the 61.8% Fibonacci retracement and the early Nov. peaks.
From today’s point of view, we see that the bulls didn't fail, and they went pretty fast in this pro-growth scenario, climbing to the upside target as expected.
Although the XOI re-tested the strength of these resistances earlier this week, there was no daily closure above them, which, in combination with the current position of the indicators (both the CCI and the Stochastic Oscillator climbed to their overbought areas), suggests that reversal may be just around the corner.
At this point, it is worth noting that such high readings of the mentioned indicators, we saw also in mid-October. What happened then? Yup, they preceded the correction, which increases the probability that history will repeat itself and we'll see lower the index on lover levels.
How low could oil stocks go?
In my opinion, if the XOI moves lower from here, the first downside target for the sellers would likely be around 1,855.09-1,872, where the green support zone (created by the previously broken Nov. peaks) and the 50-day moving average (currently at 1,859.81) are.
If it is broken, the way to around 1,829.55-1,839.66 (where the next support area created by the 50% Fibonacci retracement based on the recent upward move and the mid-Dec. lows) would be open.
Summing up, the XOI moved higher and reached its next resistance area, but despite three attempts, oil bulls didn’t manage to close the day above it. Taking this fact into account and combining it with the very similar indicators’ readings, it seems that reversal and lower values of the oil index are just around the corner.
So now that we know what the current situation in the index looks like, let's check what's happened in the last few weeks on the chart of one of the energy companies.
What’s New in Devon Energy Corp.?
Looking at the monthly chart, we can see that the overall situation hasn’t changed much as the stocks are still trading inside the multi-month consolidation around the July 2022 low area and the 38.2% Fibonacci retracement based on the entire 2000-2023 upward move.
Given the pace of the previous several-year rebound, the correction is very shallow, which, combined with consolidation, shows that the bulls haven't lost their grip on the field to their opponents, which is a positive sign.
Additionally, after several red candles, the bulls apparently broke the evil spell and headed north.
How did this affect the medium-term chart? Let’s examine the weekly chart to find out.
From today’s point of view, we see that the buyers bounced off the green support area and broke above the green declining line, which had served as a resistance for many weeks. This positive event triggered further improvement and energy stocks climbed to the next resistance – the red gap created in Oct., approaching the long-term red declining resistance line.
In recent weeks, the CCI and the Stochastic Oscillator generated buy signals, which remain in the cards and support the buyers. However, considering the mentioned resistances and the volume, which was very disappointing in recent weeks (yes, it was falling very sharply from week to week, increasing concerns about the strength of the bulls), it seems that the return of the bears is only a matter of time - and it's a very short time.
Will the buyers find any allies in the short term to discourage the sellers from acting?
Looking at the daily chart, I'm afraid it might be difficult. Why?
First, the price reached the aforementioned red price gap created on Oct. 23. As you can see on the above chart, it was strong enough to fend off the bulls’ attacks not only in October but also in early November. And now, it is reinforced by the 61.8% Fibonacci retracement based on the Oct.-Dec downward move and the 200-day moving average, which doesn’t bode well for further improvement.
Secondly, the CCI and the Stochastic Oscillator climbed to their overbought areas, increasing the probability of sell signals in the very near future. At this point, it’s worth keeping in mind that similar situation could be observed in mid-October and earlier in September. In both cases, such high readings preceded reversals, which suggests that similar price action we could be observe in the following days.
Thirdly, the volume – although the price has moved higher it has been falling during the recent upswings, which raises concerns about the purchasing power.
What could it mean for Devon Energy Corp.?
That reversal and lower prices may be just around the corner. If this is the case and the bears show their claws, we could see at least a test of the previously broken green declining line (currently at around 45.45), which serves as the nearest support. Slightly below it, the bulls have one more ally – the green gap created on Dec. 18, which together with the green line, could stop further deterioration.
However, if the bulls fail there, the way to around 43.45-44.25 (the next green gap) will be open.
Summing up, the combination of the short-term resistances and the current position of the daily indicators (mainly due to the similarity with previous cases where the indicators were in their overbought areas) suggest that reversal and lower prices may be just around the corner.
If you’d like to know what the current technical picture of crude oil 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.
See you tomorrow.
Anna Radomska