One more white candle and… even more doubts. Why?
Technical Picture of Crude Oil
Let’s start today’s analysis with the quotes from yesterday’s article:
(…) the price of black gold pulled back and tested the previously broken 61.8% Fibonacci retracement and the lower line of the gap. Although the seller moved even lower, these supports withstood the selling pressure and light crude reversed and rebounded, climbing above the opening price ang the gap – similarly to what we saw on Thursday.
This time, however, the upswing was much smaller, but the bulls managed to test the next resistance zone. As you see, they didn’t manage to hold gained levels and quite quickly, the price slipped lower, finishing the day under the 200-day moving average.
What’s next?
On one hand, another green gap looks encouraging – especially when we factor in the buy signal generated by the Stochastic Oscillator. However, on the other hand, smaller volume during recent increase raises some doubts about the bulls’ strength and their ability to break above the mentioned resistance zone.
From today’s point of view, we see that yesterday's doubts were justified because, despite another white candle on the chart, the bulls did not manage to test the nearest resistance zone during yesterday's session.
Why?
Let’s take a closer look at the chart below and try to find the answer to this question.
Looking at the above chart, we see that the first session of the week started below Friday’s closing price for the first time in several days. This display of weakness was exploited by the bears, who decided to test the strength of their opponents and their determination to maintain their gains.
As a result, the price of black gold moved quote sharply lower, which caused a drop not only below the previously broken 61.8% Fibonacci retracement and the lower line of Friday’s green gap (similarly to what we saw during the previous session), but also under Friday’s low.
Despite this deterioration, oil bulls closed ranks and took action, which resulted in a rebound and a comeback above the opening price. This positive development attracted more buyers to the trading floor who managed to close the price gap that appeared at the beginning of the day. This success triggered further improvement, but the previously used strength to close the morning gap did not allow the bulls to test the above-mentioned nearest resistance zone.
Finally, crude oil gained 0.10% during yesterday’s session, but closed the day under the 200-day moving average for the second time in a row. Additionally, Monday’s intraday high was lower than Friday, which raises even more doubts about further improvement – especially when we take into account yesterday’s volume, which decreased for the third time in a row.
Does this mean that reversal could be just around the corner?
In my opinion, it’s very likely. Nevertheless, taking into account the buy signal generated by the Stochastic Oscillator in the previous week, the bulls may make another attempt to attack the mentioned resistance zone before they completely lose their strength.
If this is the case, we could see an increase to the 200-day moving average or even to around $77.60, where the 78.6% Fibonacci retracement is. However, please keep in mind that any sign of the buyers’ weakness will likely be exploited by the bears at the first opportunity.
Additionally, it is still worth keeping in mind the current situation on the weekly chart and its implications, about which you could read in yesterday's article posted on oilpriceforecast.com:
(…) These concerns are also strengthened by the proximity of the huge pro-declining candlestick formation and its negative implications.
As a reminder, the bears attack at the beginning of the month took the price of black gold under the previous week’s opening price, which resulted in the creation of a big bearish engulfing candlestick formation, which together with the red resistance zone and the 38.2% Fibonacci retirement continues to block the way to higher levels.
Additionally, last week’s decline materialized on visibly smaller volume, suggesting that the bulls may be not as strong as it may seem (focusing only on the daily chart) and reversal may be just around the corner.
If this is the case and the bulls do not manage to climb higher, all the above-mentioned technical factors could lure the sellers to the trading floor and trigger a correction.
Therefore, careful observation of the behavior of market participants during the next session can provide very valuable clues about the next major price movement.
Summing up, crude oil opened Monday’s session below Friday’s closing price, which resulted in a pro-declining gap for the first time in several days. Despite this deterioration, oil bulls managed to trigger a rebound and closed the gap in the following hours. Nevertheless, this development weakened their strength and prevented them from attacking the nearest resistance zone, which, combined with another drop in volume, raises more and more concerns about the continuation of the upward movement. Therefore, if there are further reliable signals confirming the exhaustion of buyers' power, opening short positions may be taken into account. Stay tuned.
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See you tomorrow.
Anna Radomska