Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Conflicting Views on Crude Oil Price

Commodities / Crude Oil Jul 29, 2018 - 08:48 AM GMT

By: Nadia_Simmons

Commodities

Recent days were good for oil bulls. Thanks to their action, the price of the commodity came back to around $70 and one of the daily indicators even generated a buy signal. Did the outlook turn to bullish? In our opinion, it didn’t. Furthermore, it seems that a fresh July low is still ahead of us. Why? The answer is quite simple - an analogy to the past.


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

Technical Picture of Crude Oil

Looking at the above chart, we could summarize it with only three words: nothing has changed. Why? Because although crude oil increased a bit it is still trading under the 38.2% Fibonacci retracement.

Nevertheless, if we draw a few additional lines on this chart, mark technical formations invisible at first glance with their ranges and compare the current situation to something that we have already seen in the past our chart will become much more interesting. See for yourself.

Were we right? We hope that the answer is yes. So, what can we read from the above chart about the future of black gold?

From this perspective, we clearly see that crude oil is trading inside a very short-term black rising trend channel, which reached the mentioned 38.2% Fibonacci retracement during yesterday’s session for the second time in a row.

What does it mean for the price of light crude?

Let's start with a quote from yesterday's alert:

(…) Despite this climb, this first resistance triggered a pullback, which suggests that as long as it remains in the cards higher prices of black gold are not likely to be seen and one more move to the downside should not surprise us in the coming days.

Is this quote still valid? Definitely yes.

Additionally, yesterday’s upswing materialized on the smallest volume since July 18 (the beginning of the current rebound), which raises some concerns about the strength and condition of oil bulls – especially when we factor in another unsuccessful attempt to go above the 38.2% retracement.

Since we have already mentioned the very short-term black rising trend channel, let's analyze it more closely. As you see on the daily chart, although crude oil extended its rebound in recent days, it is still trading inside this formation, which means that as long as there is no breakout above the upper line of the channel further improvement is questionable.

At this point it is worth noting that we saw several unsuccessful breakouts in the narrower perspective. Let’s take a look at the 4-hour chart below.

As you see, although oil bulls pushed the price above the upper border of the channel in previous days, all these improvements were very temporary, which means that their opponents kept an eye on this important line.

Additionally, earlier today, the CCI and the Stochastic Oscillator generated the sell signals, increasing the likelihood of lower prices later in the day.

However, before we start talking about the downside targets, let's go back to our technical formation and its implications.

Potential Flag Formation Underway

On the daily chart, we see that entire July’s price action looks like a potential flag formation. The pattern started with a short-lived consolidation, then accelerated sharply on July 11 (that day, the buyers had to cover their long-positions to avoid losses as more sellers came in off the fence) and rebounded slightly only to fall even lower in the following days.

In this way, oil bears formed the flagpole (marked with the first green rectangle), which is currently followed by an orderly rebound (the mentioned very short-term black rising trend channel), which forms the flag.

That sounds interesting, but what does this mean for oil?

For those who do not know yet, we explain that flags are continuation patterns. This means that if oil bears show their claws once again and manage to break below the lower border of the very short-term black trend channel, the next leg of the downside trend will begin, and we’ll see lower prices of crude oil.

What will be the initial downside target of the mentioned flag pattern?

Those of you who are interested in commodity/financial markets probably heard the idea that “the flag flutters in the middle of the flagpole”, which means to us that it occurs in the middle of the entire downward move. Therefore, to predict the forecast price level we should measure the size of the flag pole (we marked it with the first green rectangle) and then subtract it from the top of the flag.

Thanks to this method we see that crude oil could decline as far as to around $62 (the second green rectangle) to complete the whole formation. In this area, there is also the support zone created by April lows, which could attract oil bears like a magnet.

Nevertheless, to see black gold at this level, the sellers will have to break under the blue and red rising support lines (lower borders of the rising trend channels seen on the daily chart attached in yesterday's alert) and the green support zone based not only on these lines, but also on June’s lows, which may not be a very easy challenge.

Why? At this point, the time has finally come to go back to the past.

Looking at the daily chart, we see that a similar price action to the one we are currently observing took place in the first half of June. Back then, the price of crude oil also bounced north (moving in a similar growth channel) after quite strong declines, and then fell to a fresh low. Despite that price action, oil bears didn’t manage to trigger further deterioration as the proximity to the red support line and the 61.8% retracement encouraged their opponents to act.

Taking the above into account, we believe that even if the sellers do not manage to push the commodity to around $62, we’ll see (at least) a fresh July low and a test of the nearest support zone (marked with green) in the coming week.

Long-term Factors

The pro-bearish scenario is also reinforced by two important negative developments seen more clearly from the broader perspective. Let’s examine the monthly chart below to find out what we mean by that.

Looking at the above chart, we see that although crude oil bounced off the 200-month moving average earlier this month, the commodity remains under the previously-broken red resistance zone (created by the two important Fibonacci retracements) and the upper border of the green rising wedge.

This means that an invalidation of the earlier breakouts and its negative impact on the price of light crude are still in effect, suggesting that if we see a monthly close below the mentioned resistances oil bears will get one more important reason to push black gold lower in the coming month(s).

In our Wednesday Oil Trading Alert, we also focused on the relationship between crude oil and the general stock market. Has anything changed since then?

Crude Oil – General Stock Market Link

Not really, because although the oil-to-stocks ratio rebounded, it still remains under the previously-broken lower border of the green rising trend channel, which looks like a verification of the earlier breakdown.

Therefore, if the situation develops in tune with our assumptions and the ratio declines once again, we’ll likely also see lower prices of crude oil in the following days as a strong positive correlation between the commodity and the ratio is still in the cards. The pro-bearish scenario is also reinforced by the position of the indicators as the sell signals generated by the CCI and the Stochastic Oscillator continue to support the sellers.

Summing up, our profitable short positions continue to be justified from the risk/reward perspective as the short-term outlook remains bearish (two unsuccessful attempts to break above the 38.2% Fibonacci retracement, a potential flag formation, similarity to the past, a potential invalidation of the breakouts seen from the long-term perspective, current situation in the oil-to-stocks ratio), favoring oil bears and lower prices of crude oil in the coming week(s).

If you enjoyed the above analysis and would like to receive free follow-ups, we encourage you to sign up for our daily newsletter – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to our premium daily Oil Trading Alerts as well as Gold & Silver Trading Alerts. Sign up now.

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

Sunshine Profits: Gold & Silver, Forex, Bitcoin, Crude Oil & Stocks
Stay updated: sign up for our free mailing list today

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Nadia Simmons and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Nadia Simmons and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Nadia Simmons is not a Registered Securities Advisor. By reading Nadia Simmons’ reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Nadia Simmons, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in