Could Pro Growth Formation in Crude Oil be Just Around the Corner?
Even though the bulls have been down for the last few sessions, they've managed to maintain the short-term support that's most important to them. In addition, another potential ally has appeared on the horizon. Will they use its potential to regain the levels they lost?
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Having said that, let’s jump to the world of charts.
Technical Picture of Crude Oil
In Tuesday's OTA, you could read the following:
(…) Looking at the weekly chart, we actually could summarize it with one word: consolidation. (…)
Nevertheless, we should also notice that the size of the volume during declines decreases from week to week, which suggests that the sellers may slowly be losing their earlier strength. This suspicion is also supported by an earlier keyword: consolidation.
Since the bears have been unable to push the price down and have begun to battle their opponents in a fairly narrow price frame, the chance for a breakthrough seems to be just around the corner – especially when we take into account the current position of the weekly indicators: the CCI and the Stochastic Oscillator slipped to their oversold areas, increasing the probability of buy signals very shortly.
The fluctuation of the market participants is also visible on the daily chart - on the one hand, the bears daily push the price lower and lower, but on the other hand, the entire price action takes place along the main support and within the consolidation - in addition, just above the support zone.
(…) which suggests that yesterday’s price action could be another verification of the earlier breakout above this line.
Additionally, yesterday’s downswing took black gold to the green support zone once again, but it withstood the selling pressure and triggered a rebound once again, suggesting increased vigilance of the bulls in the area.
From today’s point of view, we see that the combination of all the above-mentioned technical factors encouraged buyers to return to the trading floor. As a result, the price of black gold has recovered slightly over 2% and has risen above $76.
How did this affect the technical picture of the commodity?
Crude oil closed Monday's red gap and rose to an intraday high of $77.02. It’s a very interesting level. Why? Because in this region, there's a blue dashed line, which could be the neckline of the potential pro-growth formation that I've written about in previous articles:
(…) when we focus a bit more, we can see a potential pro-growth formation – the reverse head and shoulders pattern. Please keep in mind that it’s only potential as the price of black gold is still trading under the blue declining dashed line, which could be a neckline of the formation.
The volume, unfortunately, was not impressive because it was close to what we had seen the day before. However, the Stochastic Oscillator changed its mind and switched back to the bulls' side, generating a buy signal.
Taking all the above into account, it seems that further improvement might be just around the corner. Nevertheless, please keep in mind that the pro-bullish scenario will be more likely only if the bulls manage to push crude oil above the blue line and confirm the reverse head and shoulders formation.
Another factor which could increase the probability of a bigger move to the upside would be a breakout above the upper line of the orange consolidation (marked on the daily chart) and an increase above the 200-day moving average and the recent highs.
If we see such price action, the way to the upper border of the red declining trend channel, the 50% Fibonacci retracement (based on the entire Sept.-Nov. downward move), or even to late Oct. peaks around $85 might be open.
Summing up, it’s worth keeping an eye on the bulls' current actions, as confirmation of their strength could result in a further northward march and encouragement to open a position. Stay tuned.
In yesterday’s Oil Trading Alert, you could read about the current situation in the NYSE Arca Oil Index (XOI). Today, I'm going to take a closer look at a few select companies. Two of them you've already read about in previous alerts and the end will be someone completely new. Have a good read.
BP – Bulls vs. Channel
So, let's start our discussion today with a long-term chart - it’s important to have a broader context.
In the foreground is the consolidation of several months, which slowed down the ongoing march of the bulls to the north since 2020. Some say all good things must come to an end. But is this really the end of the bullfight?
Let's look at the technical aspects.
What's in it for the buyers? In particular, the above-mentioned consolidation takes place above the green zone created by the 2018 and 2019 tops that were defeated at the beginning of the year. It serves as immediate support, which effectively restrains the sellers from the beginning of the year.
Can they push the price down? Let's see what the technical arguments are on their side and how strong they are.
The first of these is that you can see negative divergences between the stock price and all three indicators marked on the chart. In addition, the CCI and the Stochastic Oscillator generated sell signals by encouraging a sell-off.
And when we look at the chart more closely, we can see that it's quite similar to what we saw in 2018 before the September peak. But before there was any significant movement southwards, buyers tried to attack even higher levels.
Second, based on this chart alone, I think that unless the price falls below the lower limit of the orange consolidation and the bears move below the green support zone, the road south is still closed.
Does the medium-term picture support these claims? Let's check the weekly chart.
The bulls' situation here is not so optimistic. Why? Because the sellers have managed to break below the long-term green support line, which, in the classic view of technical analysis, is not a good thing.
In addition, as in the first half of last year, BP has dipped below the 50-week average, which, combined with the sell signals generated by the CCI and the Stochastic Oscillator, may lead bears to further tests - the blue support zone based on the May and June lows or even the lower border of the orange consolidation visible on the monthly chart.
Can the bulls expect any short-term supportive signs in the coming week?
Looking at the daily chart, we see that although the buyers managed to bounce back from the area of the earlier November lows, the resistance zone created by the previous highs stopped their appetite for higher levels. The blue dashed line, which appears to be the upper border of a very short-term channel, also proved to be an additional resistance.
What does it mean for the stock?
In my opinion, the situation is not very optimistic (at least at the time of writing). Why?
Because even if the bulls manage to break through the resistance zone described above and get out of the blue channel very close to the current levels, a very strong resistance zone (based on the November peaks, the big red gap that was formed on October 31, the 38.2% Fibonacci retracement and the 200-day moving average) is spreading.
At this point, it is also worth noting that the 200-day moving average proved to be an effective brake (on Oct. 31 and Nov. 2), which ruined the bulls' chances of closing the gap.
As we know, history repeats itself, so in my opinion, as long as this area remains clearly out of reach of the bulls, the movement back into the blue canal should not surprise us – especially when we take into account the volume that we observed yesterday (yup, it was even smaller than the day before, which does not confirm the strength of the bulls).
Summing up, although the stocks have moved higher in recent days, the upper line of the channel, in combination with previous peaks, was strong enough to stop further improvement. Additionally, not far from current levels is also the major short-term resistance zone, which suggests that the fight for higher levels will not be easy. Therefore, personally, I'd hold off on spending the money to buy stock in this place.
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Hess Corporation – Quick Update
Quoting the last commentary on the stocks:
(…) if the bears attack once again, it seems that the space for declines might be limited as another supporting green gap is not so far from current levels. Additionally, the buy signals generated by the indicators could encourage buyers to return to the market in the coming week.
Looking at the daily chart, we see that the situation developed in line with the above scenario, and the sellers didn’t manage to hit a fresh Nov. low, which is a positive technical sign. What’s interesting is that their attempts to move lower were stopped around mid-Nov low, which translated in the formation of a large white candle (on Nov. 22), which took the bulls back above the 200-day moving average.
In the following days, we could notice further improvement, but (similarly to what we saw in the case of BP) the upper border of the blue channel, in combination with the upper line of the red gap, continued to serve as the nearest resistance, which suggests that as long as there is no successful breakout above these levels, the way to the north is closed, and reversal from current levels should not surprise us.
Summing up, in my opinion, the outcome of the following session(s) could determine the direction of the next move.
Before I end today's alert it's time for a new company in our OTA lineup - Chevron Corporation.
Chevron Corporation – Technical Overview
Looking at the monthly chart, we see that at the beginning of the year, the bears managed to break through the lower border of the green rising trend channel, triggering further declines.
Since the beginning of the year, stocks have been moving inside the red descending channel, but despite this fact, the correction of the previous upward movement is very shallow, as it did not even reach the first important Fibonacci retracement.
Additionally, the price continues to hold above the green support zone based on previous lows and the 38.2% Fibonacci retracement, suggesting that the room for further declines may be limited.
What interesting clues can the weekly chart give us as to our next moves? Let's check the chart below.
The first thing that strikes me on the chart above is the multi-week consolidation (marked with orange) right over the solid support (at least at the moment of writing these words) - the green gap that was formed at the beginning of October.
Additionally, the CCI and the Stochastic Oscillator dropped to their oversold areas (the latter generated even a buy signal), which suggests that the space for declines may be limited and reversal could be just around the corner – especially when we factor in the fact that the lower border of the red declining trend channel (marked with dashed lines) is not so far from current levels and reinforces the area of the mentioned gap.
And what is the short-term outlook for market participants? Let’s examine the daily chart.
From this perspective, we see that just like in the case of BP and Hess Corp., the stocks are currently trading inside the very short-term blue rising trend channel.
The red gap created on Nov.7 remains in the cards, which in combination with the proximity to the next resistance (based on June lows) and the upper line of the blue channel suggests that as long as the bulls don’t manage to break above these levels, the way to the next important resistance zone (created by the big red gap from Oct.27 and the 38.2% Fibonacci retracement) is closed and reversal and a return to the interior of the channel can’t be ruled out.
Summing up, despite the bullish attempts to recover, the road to the north still seems closed and only an effective breakout above the nearest resistance zone can induce more buyers to return to the trading floor.
Finishing today’s Oil Trading Alert please keep in mind about your special code: OTAISBACK. By purchasing the premium version of Oil Trading Alerts until the end of November, you will get a 33% discount for a monthly subscription.
Have a great day and see you tomorrow.