Crude Oil - Under the Lines

On Friday, light crude slipped under very important supports. Will the bears take advantage of this?

In yesterday's article, you had the opportunity to read about the current technical situation in natural gas.

But what did the above-mentioned closure below the essential support lines lead to in the case of crude oil? What are the consequences? Curious?

In today's article, I share with you the analysis of black gold that I posted in yesterday's Oil Trading Alert. Have a nice read.

Technical Picture of Crude Oil

Crude Oil - Under the Lines - Image 1

Looking at the weekly chart, we see that crude oil reversed and declined in the previous week, slipping not only below the barrier of $80, but also under the previously broken upper border of the orange consolidation and the upper line of the yellow consolidation.

In this way, the commodity invalidated the earlier breakout above these lines, which doesn’t bode well for the bulls and higher prices of light crude – especially when we factor in the size of the volume (which accompanied the last week’s decline) and the scenario that emerges from the short-term chart below.

What do I mean by that?

Let’s examine the daily chart to find out.

Crude Oil - Under the Lines - Image 2

The first thing that catches the eye on the above chart is the breakdown and a daily closure under the lower border of the purple rising wedge, which is a strong bearish development.

Crude Oil - Under the Lines - Image 3

Additionally, thanks to Friday’s drop, the commodity closed the day slightly below the lower line of the orange consolidation, which, together with the above-mentioned breakdown under the purple rising wedge, suggests further deterioration and increases the probability of the realization of the bearish scenario about which I wrote on Friday:

(…) What’s next?

(…) If (…) the bears manage to push the commodity under the lower border of the orange consolidation (which also corresponds to the above-mentioned bulls’ headquarter), the way to $75.25 (where the size of the downward move would correspond to the height of the formation) will likely be open.

However, before this goal is achieved, sellers will have to overcome an important very short-term support area about which I wrote yesterday:

(…) In my opinion, the next target for the bears would likely be the support area created by the lower border of the blue channel, the 50% Fibonacci retracement (based on the Feb. upward move) and the green supportive gap ($76.22-$76.42).

However… (…) If it is broken, we’ll likely see a test of the 38.2% Fibonacci retracement (based on the entire mid-Dec.-Feb upward move). The next stop for the bears could be the 50-day moving average and the lower border of the black rising trend channel, which are slightly above the 50% Fibonacci retracement.

Before the summary of today’s comment, please keep in mind that Friday’s move materialized on a smaller volume than earlier declines, and the 200-day moving average remains in the cards (and still serves as the nearest support), which together with the proximity to the 38.2% Fibonacci retracement (based on the Feb.-Mar. upward move) could encourage the bulls to test the strength of the previously broken lower border of the purple rising wedge before we see another move to the downside.

If it withstands the buying pressure, oil bears will receive another important reason to act - a verification of the earlier breakdown under this line, which will likely accelerate the move to the south in the following days.

Summing up, thanks to the decline that we observed, the commodity finished the day (and the whole week) under important medium-term lines (below the upper borders of the consolidations marked on the weekly chart) and below the short- and very short-term formations, which increases the likelihood of further deterioration in the coming day(s).

Meanwhile, based on yesterday’s move in crude oil profits on my current trading positions have just increased. And it looks like they can increase further in the following days. If you’d like to know more and find out what the current technical picture of crude oil is I encourage you to subscribe to Oil Trading Alerts.

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See you tomorrow.

Anna Radomska