Strong upswings, strong formations, and strong lines. Will the bulls be strong enough to continue their fight?
On the one hand, the strong march took bulls to an important area. On the other hand, it weakened their strength somewhat. What’s next? Will we see higher prices? Or maybe reversal is just around the corner? If you want to know the most likely scenario for the coming days, I encourage you to read today's article. Have a nice read.
Let’s start today’s analysis with the quote from the last commentary on Exxon Mobil published on Jan.19:
(…) So, what’s next?
Taking into account the bulls’ weakness in recent weeks and all the above-mentioned bearish factors, it seems that going north and regaining lost levels will not be an easy challenge. In my opinion, the bulls will have to show great determination and will to fight to encourage other buyers to return to the trading floor.
What could be the first sign of improvement?
A successful breakout above the upper border of the red declining wedge (currently at around 98.14), which will also mean the closure of the first red price gap. Only such an event can be a starting point for considering changing the short-term trend, which is currently downward. In other words, until we see a clear bullish strength on the chart, another test of the lower border of the green support zone (marked on the weekly chart) and the 61.8% Fibonacci retracement can’t be ruled out.
From today’s point of view, we see that after the publication of the last article, the situation developed in accordance with the described pro-declining scenario, and the price hit a new bottom during the following sessions.
In this way, stocks tested not only the above-mentioned lower border of the green support zone (marked on the weekly chart below), but also the lower line of the red declining wedge seen on the daily chart.
As you see, the combination of these supports encouraged the bulls to fight, which led to a breakout above the upper line of the rising wedge. This positive development lured even more buyers to the trading floor, which translated into further improvement and closure of the gap from Jan.17.
This show of the bulls’ strength resulted in a pro-bullish green gap (97.91-98.32) on Jan.24, which gave the buyers hope for even higher levels. We didn't have to wait long for the effects because the next session opened with the price gap (99.60-100.31) once again, which triggered further improvement.
Thanks to the bulls’ determination, the price came back above the previously broken 50-day moving average and broke above the black declining resistance line based on the previous highs, opening the way to attacking the upper border of the big red gap created on Jan.8.
As you see on the above chart, the next session brought the buyers another victory, and stocks ended the day above the gap, closing it and depriving their opponents of a valuable ally.
Yesterday’s session resulted in one more upswing, but the proximity to the nearest strong resistance zone encouraged the bears to test bullish strength after the opening of the session, leaving a candle with a small body and a prolonged lower shadow on the chart.
What does it mean?
The extended lower shadow confirms the bulls' vigilance and their will to fight in the area of the daily low (101.86). However, the intense march northwards had apparently weakened them somewhat… Just look at the volume. During recent sessions, it was systematically falling while the price was rising, which does not confirm the growing involvement of bulls in shaping subsequent white candles.
Additionally, the price approached the resistance area (103.50-104.08) based on two pro-bearish candlestick formations: the bearish engulfing pattern formed on Dec.20, 2023, and the dark cloud cover formed on Jan.4, which could encourage the sellers to act in the coming days – especially when we factor in the current position of the daily indicators.
As you see, the CCI increased to the level seen at the beginning of the year, which preceded the recent downward move (which we could fit into the framework of the declining wedge). At the same time, the RSI climbed to the levels we saw at the end of September (yup, such a high reading of the indicator also preceded a decline) while the Stochastic Oscillator moved well above 80, hitting its overbought area.
On top of that, when we take a closer look at the weekly chart below, we can see one more disturbing factor that may curb the bullish appetite for higher levels in the coming days.
From this perspective, we see that on the one hand, thanks to last week’s upswing, the buyers gained a bullish-engulfing candlestick formation, which is a strong positive development – especially when we take into account the place where it was formed (a strong green support zone) and buy signals generated by the weekly indicators.
On the other hand, however, the recent upswing took stocks to the previously broken red resistance line, which was strong enough to thwart the bulls' pro-growth plans in mid-Dec. and also at the beginning of the year.
As it turned out, both upswings were just verifications of the earlier breakdown (you could read about it in the article on Exxon Mobil published on Jan.2), which translated into further deterioration and fresh lows.
Will history repeat itself again?
Taking into account the proximity to the resistances marked on the daily chart, declining volume during recent sessions, the position of the daily indicators, and the mentioned key red resistance line, it seems that reversal could be just around the corner.
If this is the case, and the price moves lower, the first downside target for the sellers would likely be the previously broken short-term black declining line (currently at around 101) or even the green gap (99.60-100.31) formed on Jan.25.
Summing up, the strong march of the bulls’ northwards seems to weaken their strength somewhat, which has resulted in falling volume in recent sessions. Additionally, stocks approached the resistance area based on two strong-bearish candlesticks formations and the key resistance line, which stopped the buyers three times in the past. Taking these facts into account and combining them with the current position of the daily indicators, it seems that reversal and correction of the recent upward move could 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 the bears have, I encourage you to subscribe to Oil Trading Alerts, where you’ll find the answers to these (and many other) questions.
Anna Radomska