Crude Oil – More of the Same?
Another red candle, another gap, another test… When will there finally be a breakthrough, and we'll see a bigger move in the price of black gold?
Technical Picture of Crude Oil
Let’s start today’s alert with the medium-term chart.
Looking at the weekly chart, we actually could summarize it with one word: consolidation.
Yes, yes, yes, I know, we can’t forget about the breakdown under the green medium-term support line, the verification of this important technical move (in the previous week), the decline under the September low, the verification of the breakdown below this level and the implications of these events remain in the cards and still serve as allies of the bears in the fight for lower levels.
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.
Take a look at the chart below.
From today’s point of view, we see that the short-term technical situation has not really changed as the upper border of the red declining wedge still holds the price before going back into the middle of the formation.
Although the bears showed their claws once again, the commodity closed the day slightly above this major short-term support, 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.
On top of that, the potential ally that is slowly emerging from the chart was also not denied yesterday. What do I mean? I think the best answer would be a quote from yesterday's alert:
(…) 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.
It means that the bulls will have to push crude oil above it to start thinking about higher prices. In my opinion, the best confirmation of bullish strength will be 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 will be open. (…)
So… when will there finally be a breakthrough, and we'll see a bigger move in the price of black gold?
The pro-bullish scenario, in my opinion, will likely be seen if the bulls manage to break above the neckline of the above-mentioned potential formation.
The pro-bearish scenario and further deterioration would be more likely if the sellers manage to close the day inside the red declining wedge. In this case, the way to Nov. lows or even the lower border of the red declining would be open.
Summing up, please keep in mind that another bigger move will likely be seen only if black gold moves above the upper line of the consolidation marked on the weekly chart (pro-bullish scenario) or slips below it. Until this time, short-lived moves in quite a narrow price range should not surprise us.
NYSE Arca Oil Index (XOI) – The Current Overview
If any of you are wondering what happened at the same time with the oil stocks index, I invite you to analyze the chart below.
From the weekly perspective, we can also see (just like in the case of crude oil) a consolidation in which the index is stuck. However, in this case, the bulls' situation is more “comfortable” as the XOI is still trading not only well above the long-term green rising support line, but also above the 50-week moving average.
Additionally, the battle between the bulls and the bears takes place above the green support zone based on the Oct. and Nov. lows, which successfully stopped further deterioration.
On top of that, the Stochastic Oscillator generated a buy signal, encouraging the buyers to act.
Do the bulls have any allies on the daily chart as well?
Before we answer this question, let's recall the last comment on the XOI published in the first (new) OTA:
(…) If we look at the chart more closely, and if we sharpen our eyes to look for signs of growth, we can actually see a few.
The first thing that strikes me about the above chart is the invalidation of a tiny breakdown below the previous lows formed at the beginning of the previous month (the green dotted line). According to the rules of the technical analysis, this is a fairly strong argument in favor of the buyers (hooray).
Secondly, just around the corner, there is another support zone based on the 50% Fibonacci retracement and a 200-session moving average (MA200), which can discourage bears from fighting further and result in taking earlier profits of the table.
Thirdly, the position of the indicators. Both the CCI and the Stochastic Oscillator have plunged into their oversold zones. (…) In addition, a positive divergence between the index and the CCI (indicated by the green dashed lines) can be added to the bullish symptoms.
From today’s point of view, we see that the combination of all the above-mentioned factors was actually strong enough to encourage the bulls to come back to the market.
Although the bears hit a fresh Nov. low in the following week, the support zone created by the previous lows, the 50% Fibonacci retracement, and a 200-session moving average (MA200) stopped further deterioration, triggering a move to the upside.
The northern route, however, was not open to buyers, and they had to face their opponents in another battle, but as a result of their actions on the market floor, a potential pro-growth formation was formed, which we saw earlier on the WTIC chart – the reverse head and shoulders pattern.
Therefore, if the bulls do not give up in the following days and manage to break above the blue dashed line (the potential neckline of the formation), the way to higher levels of the index will be open. If this is the case, and we really see the breakout, the first upside target for the bulls would be around 1,915, where the Nov peaks are.
However, taking into account the mentioned technical formation, it seems that we could see an upward move even to around 1,962, where the size of the move would be equal to the height of the reverse head and shoulders pattern.
Summing up, a potential pro-bullish formation is on the horizon, which in combination with the buy signals seen on the daily chart and the situation marked on the weekly chart, increases the probability of further improvement in the coming week(s).
Finishing today’s OTA, I would like to encourage you again to be active in our community, where you can write about your needs. Please keep in mind that I'm here to support you in your investment decisions by shedding light on what I think is worth shining a light on. Analyzing charts and looking for correlations is my passion, so feel free to write.
See you tomorrow.