Where Will Crude Oil Head Next?
Another day, another gap. Have the bears completely capitulated yet?
Technical Picture of Crude Oil
Let’s take a closer look at the price action that took place during yesterday’s session. What are its implications? What can we expect in the coming days? Was it worth closing short positions and taking profits off the table? The answers to all these questions you will find in today's article. Have a nice read.
Let’s start with a quote from yesterday’s article on crude oil:
(…) the price of black gold dived below all important very short-term supports (the lower border of the black channel, the lower line of the blue triangle, the lower border of the green gap from Jan.12, and the 61.8% Fibonacci retracement), but the sellers were unable to keep the commodity at such low levels.
Their opponents came back to the trading floor and pushed light crude higher, invalidating all breakdowns under the mentioned levels.
(…) Finally, crude oil closed the day only 3 cents above the opening price, creating on the chart a dragonfly doji candlestick formation, which can signal a potential reversal.
Looking at the daily chart, we see that the situation developed in tune with the above-mentioned assumption, and crude oil extended gains during yesterday’s session (which showing that the decision to close short positions on Tuesday and take profits was right).
When we zoom in the daily chart, we can see what happened after the U.S. market open more clearly.
From this closer perspective we see that the commodity started the day with a green gap ($73.31-$73.50), which took the price of black gold above the 50-day moving average.
This positive development triggered oil bears and encouraged them to test the credibility of this new bullish ally. As a result, light crude moved lower and tested not only the lower border of the gap, but also the previously broken 50-day moving average.
As you see, these supports withstood the selling pressure, which translated into a rebound and a comeback above the gap. This show of strength lured even more buyers in the following hours, which caused further improvement and an increase to the first strong resistance area (created by the 38.2% Fibonacci retracement, the upper border of the blue triangle and the previously broken upper line of the orange consolidation).
Despite a tiny breakout above it, oil bulls didn’t manage to hold gained levels, which resulted in a small pullback and a daily closure under these resistances. In this way, light crude invalidated the breakout, which doesn’t look encouraging – especially when we factor in the fact that the volume was lower for a third time in a row (when we consider the last white candles), which doesn’t confirm oil bulls’ strength.
Nevertheless, taking into account yesterday’s green gap, its defense and a verification of the earlier breakout above the 50-day moving average, it seems that another attempt to move higher is quite likely.
However, in my opinion, further improvement will be possible only if the buyers manage to break above the nearest resistance zone (marked with a red circle).
What could happen if the bulls do not fail?
We could see an increase to around $74.76, where the 50% Fibonacci retracement is. If this resistance is broken, the way to the 61.8% retracement (at around 75.56) would be probably open.
Before the summary of today’s crude oil analysis, it’s worth noting that the Stochastic Oscillator generated a buy signal, giving the buyers one more reason to act in the coming day(s).
Summing up, crude oil opened yesterday’s session with another gap, which in combination with the verification of the breakout above the 50-day moving average and the above-mentioned buy signal suggests that one more attempt to move higher is likely in the very near future (maybe even later in the day).
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See you tomorrow.