Breakdown, a huge bearish candlestick formation and similarity to the past.
What does the current technical picture of the company look like? Who wins and has more technical arguments on its side? What's the trend for next week? In today's article, you will find answers to all these questions. Have a nice read!
The long-term chart doesn’t look too optimistic for the bulls from today’s point of view.
Why? Because the first thing that caught my eye on the above chart was the breakdown below the long-term green support line in the previous month (the stocks closed the month under this line). Earlier this month, the bulls pushed the price higher but didn’t manage to come back above this line, which triggered a pullback.
Although this is the beginning of the month, and there are still many sessions ahead of us that may change the final image and meaning of the January candle, the recent price action suggest that we could witness the verification of the last month’s breakdown.
If this is the case, this could be a strong bearish sign, which could trigger further deterioration in the coming week(s) – especially when we factor in the sell signals generated by the CCI and the Stochastic Oscillator.
How did this price action affect the medium-term chart? Let’s take a look at the weekly chart and find out.
From this perspective, we see that although the bulls managed to break above the upper border of the orange consolidation in the previous month (a positive sign – especially when we add to this fact the green gap created in the week started on Dec. 18), they didn’t hold gained levels. As a result, the stocks reversed quite quickly and closed last week under 116.81 (the previously broken upper border of the consolidation), invalidating the earlier breakout.
Despite this bearish sign, the buyers didn’t give up, closed ranks, and moved north again earlier this week. Their attack took the price to a fresh multi-week high of 121.24, but just like a week earlier, they showed weakness when confronted with resistances (the red gap (122.44-123.44) created in the week started on Oct.23, 2023, in combination with the long-term line marked on the monthly chart).
The sellers were waiting for such an opportunity, and they took action very quickly. Thanks to their activity, the price slipped under 116.81 once again, leaving behind a strongly elongated upper shadow.
What does it mean?
If the bulls fail to reduce it later in the day, a pro-bearish candlestick formation will appear on the chart. What formation? A shooting star, which usually indicates a potential price top and reversal.
If this is the case, and the bears gain another ally, we’ll likely see a test of the nearest support (the green gap [114.54-115.83] created in the week started on Dec.18) in the very near future – probably early next week. At this point it is worth noting that the lower border of this area is currently supported by the lower line of the green rising trend channel, which increases the importance of this support zone.
Why?
Because if the gap is closed and the sellers manage to close the week under the lower line of the channel, the way to the lower border of the orange consolidation (109.98) and the mid-December lows (around 109.70) will be open.
What else do the bulls have on their side?
The buy signals are generated by the CCI and the Stochastic Oscillator. Nevertheless, in my opinion, it is not enough to believe that they will be able to attract a large number of buyers to the trading floor if the gap is closed and the price is below the upward channel.
Can the short-term chart give them more allies? Let's examine the daily chart.
The first thing that catches the eye on the above chart is a huge red candlestick formed during yesterday’s session on higher volume (compared to earlier candles), which, in combination with the earlier white candle, created a pro-declining bearish engulfing pattern.
This is a strong bearish formation, which usually is enough to stop further improvement and encourage the sellers to act (you could read about its disastrous effect for bulls in an article on copper published on Dec.29, 2023) – especially if it is formed in the resistance area.
Take a look at the daily chart below once again from a slightly closer perspective.
Yup, yesterday’s red candle broke temporary above the 61.8% Fibonacci retracement (based on the entire October-December downward move), but then reversed and declined, invalidating the earlier breakout. This means that the previously mentioned technical factor strengthened not only its negative connotation but also the resistance based on the retracement, significantly increasing the probability of further deterioration.
Additionally, when we take a closer look at the chart, we can notice negative divergences between all indicators and the price, which doesn’t bode well for the bulls – especially when we factor in the sell signals generated by the CCI and the Stochastic Oscillator.
On top of that, there is one more disturbing sign that speaks in favor of the bear.
What do I mean by writing that?
Just look at the RSI behavior (I marked both similar situations with orange rectangles).
At the beginning of September, the indicator moved to its overbought area, then generated a sell signal, which translated into lower prices of the stocks. After a rebound, it moved higher once again, but the negative divergence occurred (stocks hit a fresh high, but we didn’t see a fresh high in the RSI reading), which preceded a bigger move to the downside.
We can observe a very similar situation now: on Dec. 26, stocks hit high of 119.43 and then corrected their earlier move. After that pullback, the price increased to a fresh high, but the RSI didn’t do the same. Yup, another negative divergence appeared, which suggests that since history repeats itself, further declines may be just around the corner – especially when we take into account all the earlier mentioned technical factors.
How low could the price go?
If the supports mentioned below the weekly chart fail, it seems that the closest solid short-term support (based on the daily chart) may be around 111.85-112.95, where the big green gap created on Dec. 14 is. Additionally, this is the last stop before the test of the December lows.
Summing up, breakdown under the long-term support line, its potential verification (seen on the monthly chart), a potential shooting star candlestick formation (marked on the weekly chart) and a huge bearish engulfing pattern formed on the 61.8% Fibonacci retracement in combination with the position of the daily indicators and similarity to the past (seen more clearly in the behavior of the daily RSI) don’t bode well for the bulls and suggests that further deterioration and realization of the bearish scenario is very very likely in the coming day(s). Therefore, personally, I would not buy stocks now and postpone such a decision until the bulls again show their strength and readiness to fight for higher price levels.
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.
Have a wonderful weekend and see you on Monday
Anna Radomska