Looking At Crude Oil Price Corrective Upswing, Is the Bottom In? / Commodities / Crude Oil

It lookslike crude oil is set for a sizable weekly decline. After yesterday’s plunge,the market looks to have stabilized today. But is it really so? In today’sanalysis, we’re bringing you the details. We objectively reveal what to expectnext. Either the bulls or the bears won’t like it. Who do you think it’ll be?

Let’s takea closer look at the chart below (charts courtesy of http://stockcharts.com).

We’llstart with the weekly chart. Earlier this week, crude oil has verified lastweek’s breakdown below the 61.8% Fibonacci retracement. This has encouraged thesellers to act and black gold slipped below the previously-broken 50-week moving average.

If today’ssession closes below this support, the way further south will open. Of note,both the CCI and Stochastic Oscillator have issued their sell signals. Theseincrease the probability of further deterioration in the coming week(s).

In our Wednesday’s Alert, we have written about crude oil verifyingits earlier breakdown below the lower border of the rising redwedge. We noted that this was a bearish development and that it was likely totranslate into further deterioration.

Looking atthe daily chart, we see that our expectations turned out to be correct. Blackgold plunged below $62.00 and currently trades at around $61.90, making ourshort positions even more profitable.

Light crude has reached the 200-daymoving average and this has triggered a tiny rebound. Tiny when compared to thepreceding slide. The commodity however still closed yesterday’s session belowits mid-April lows. It suggests that lower prices are still ahead of us.

Examining the volume for further clues reveals an interesting point. Yesterday’s volume wassignificantly higher than that of either preceding upswing days. It reinforcesthe bearish scenario. That’s the same situation as we have had with lastFriday’s volume. And we remember where the price went next eventually.

How lowcould the commodity go? Let’s recall our Wednesday’s Alert. It remains up-to-date also today:

(…) Takinginto account the shape of the current decline, black gold could move even lowerthan the first green support zone. It could visit the second green support zonebecause there the size of the decline would correspond to the height of thewedge that the oil price has broken down from.

Summingup, the oil outlook remains bearish. After the breakdownfrom the rising red wedge has been verified, crude oil set sail south withoutreally looking back. The increased volume on yesterday’s downswing supportsthis interpretation. The weekly indicators (CCI, Stochastics) have generatedtheir sell signals. The daily indicators are also on sell signals. The bearishdivergences between the daily indicators and the oil price itself are receivingtheir downward price resolution. The short position continues to be justified.

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

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