Will Bulls Overcome Recent Bearish Trends in Oil?
The important mid-term line, the Fibonacci retracement, the divergences, the indicators and… the deja-vu. What connects them?
Give me several paragraphs and 967 words, and you will see that It's not a magic spell or a fortune-telling, but the foreshadowing of a promising scenario.
We're two weeks into November. So, let's start today's Oil Trading Alert by looking at a little bit of a broader perspective.
The first thing that catches my eye? The bears have been ruling the floor for the last three weeks.
What are the consequences of their action?
Firstly, the price dropped below the August low.
Secondly, WTI closed the week below the 50-week moving average.
Thirdly, the breakdown under the lower border of the orange consolidation.
It’s hard to deny that this combination doesn’t look promising on a Monday morning.
Do the bulls have anything to defend themselves with? Yes, and those are three equally strong arguments.
In my opinion, the strongest of these is the test and invalidation of the breakdown under the medium-term green support line based on the 2023 lows. Such price action many times in the past has been a relief to buyers and encouraged them to fight for higher levels.
Additionally, last week’s decline stopped around the May and June peaks, suggesting that the bulls will not give up this support zone and will defend it here.
On top of that, when we take a look at the volume, we can see that the second November candlestick formed at a lower volume than the previous two. This suggests that the pressure on the sellers may soon diminish – especially when we consider two previous arguments.
Are there any other technical aspects that give buyers hope for a higher oil price in the coming week? Let’s take a look at the daily chart below.
From this perspective, we see that the bulls were able to defend the support set by the 61.8% Fibonacci retracement based on the entire May-September upward move.
Additionally, we can see a bullish divergence between the CCI and WTI and a buy signal generated by the Stochastic Oscillator.
While these are undoubtedly positive symptoms, we cannot forget that Friday’s candlestick was formed on lower volume than the one before, which suggests that we should remain vigilant.
An additional factor in not making hasty decisions is the red gap created on Wednesday. In my opinion, its closure may be a credible confirmation that the bulls are strong enough to move north and regain their lost ground.
Would this be a good time to open long positions? For now, I think it’s worth waiting for the outcome of today’s session to see how the buyers will handle this nearest resistance.
Don’t worry, I’ll keep my eye on the charts and monitor the situation for you. You’ll read more about my observations in tomorrow’s Oil Trading Alert.
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.
Looking at the chart above, you can see that it didn’t spoiled the stockholders last week. Several bearish candlesticks caused the breakdown below the low formed in the last days of October, which encouraged the bears to continue their journey to the south.
Friday's white candle has crossed a bad bullfight and looks quite promising at first glance. But can we trust it? Will it be able to withstand further falls?
It's tempting to quote an old and well-known saying here: one swallow does not make a spring.
But let us not be too pessimistic and too quick to dismiss bullish impulses. 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. At the moment, there are no buy signals yet that we can believe. Nevertheless, the first hint of optimism that the stock market could turnaround is already in the air.
In addition, a positive divergence between the index and the CCI (indicated by the green dashed lines) can be added to the bullish symptoms. Now, someone might ask, so what? Why should I care about it?
Because similar negative divergence between them (marked by red dashed lines), which we could observe during the formation of the last peaks (mid-September and October), led to a return on the market and sales.
And speaking of reversals... it's worth mentioning that the situation back then is very similar to what we're seeing now. Then, the invalidation of the breakout above the previous high began the march of sellers to the south. What about now? Yes, you're right. There's also an invalidation.
We know that history likes to repeat itself, which, combined with the arguments mentioned earlier, suggests that we may see more bull activity in the very near future.
Will all stocks move north at the same pace? Or maybe the buyers will have their favorites who will speed up more than others? You can read more about that in tomorrow's Oil Trading Alert.