Is Crude Oil Firmly on the Upswing Now? / Commodities / Crude Oil

It appearedthat the bears firmly took the reins of yesterday’s session, but most of theirgains were history before the closing bell. Have we seen an important turningpoint for oil?

Let’s startwith the daily chart examination (charts courtesy of http://stockcharts.com and http://stooq.com ).

Crude oil opened yesterday’s session with the greenbullish gap that’s slightly below the 61.8% Fibonacciretracement. Although the bulls took the commodity a bit higherafter the market open, this strong resistance encouraged the sellers to act.

As a result, the price of black gold moved sharplylower and tested the strength of the pink bullish gap created in the previousweek. As it turned out, the bulls were active in this area, and prices staged acomeback. This way, the buyers erased almost the entire earlier decline andclosed the day slightly below the opening price.

As a result, the commodity created a bearish candlestickformation – the hanging man about which you could read more in our Tuesday’salert. Nevertheless, as we mentioned in one breath, this is asingle-candle formation, and as such it requires confirmation.

Did yesterday’s price action change anything in the oilshort-term picture? In our opinion, not really, because light crude closed the previoussession still below the 61.8% Fibonacci retracement.

Has there been any kind of a very short-term change incrude oil futures before today’s market open? Let’s take a look at the chartsbelow to find out.

The futures opened today 8 cents above yesterday’sclose, creating another bullish gap. This positive development triggeredfurther improvement in the following hours, which resulted in a fresh weeklyhigh and a climb above the bearish orange gap created on Tuesday.

This move also brought the futures above the 61.8%Fibonacci retracement.

However, as long as there is no daily close above thisresistance, another reversal from here and a decline are likely – especiallywhen we take into account these two factors. First, it’s the position of the4-hour indicators – they are quite close to flashing their sell signals again.Second, it’s the proximity to the green resistance line, which runs parallel tothe one based on last week’s lows.

Connecting the dots, should the futures move lower inthe following hour(s) and the bears manage to invalidate the earlier small breakout above the 61.8% Fibonacci retracement, what would be the bears’ target? We’lllikely see a test of yesterday’s low and the above-mentioned green support linebased on the last week’s lows in the very near future.

Summingup, it seems more likely than not that crude oil isgoing to decline once again, however given yesterday’s strength betting onlower crude oil prices seems too risky at this moment. Moreover, please notethat the USD Index and crude oil have been moving in the opposite directionssince the beginning of this year, and since the USD Index might be starting apullback shortly, perhaps crude oil would move sideways or slightly higherbefore continuing to decline. When in doubt, stay out.

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Nadia Simmons
Forex & Oil Trading Strategist
PrzemyslawRadomski
Founder, Editor-in-chief

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