WTI crude oil has had a fantastic run higher (if you are a bull!) for two years. The strong recovery from $26.05 initially topped at $55.24 at the beginning of 2017 and sold off to $42.05. A powerful rally followed, taking prices to a high of $66.66 in just seven months, a gain of 58%. The total gain over the two-year recovery was 155%.
The weekly chart above shows how the recovery halted just below the 50% recovery area of $69.15. However, we have to go to the monthly chart below to find a clearer reason for the potential end of the recovery. See how the red 200-month moving average at $65.00/$65.30 worked almost perfectly as resistance. At this point I advised exiting long positions. Consequently we did not manage a monthly close above $65.30.
A very sharp drop followed, which we can see more clearly on the daily chart below. Prices fell from $66.66 to bottom at $58.07, just above the blue 100-day moving average at $57.50. A good recovery took us to a selling opportunity at the upward-sloping four-month trendline. This is doing an excellent job as resistance now, as one would expect.
Looking at the shorter-term four-hour chart below, we see another reason why the recovery came to a halt. The red 200-period moving average worked as resistance, just below the 61.8% Fibonacci resistance at $63.38. There must be some bulls caught in a trap who used this as their opportunity to escape. A great opportunity, too, for bears to regain control.
So we see a strong indication that the price will head lower from here, signalling a short-term bear trend starting to build now. We have to assume this is only a correction to the two-year bull trend at this stage.
We are likely to head towards the first support at $61.35/60.85. Failure here obviously keeps bears in control, initially targeting $60.10. Below $59.70 would keep the pressure on for a test of the February low and 100-day moving average at $58.20/58.07. The reaction here will help us decide if this is still a correction, or a more serious bear trend is developing.
A break below the 38.2% Fibonacci at $57.26 would signal a move towards the December low and 200-week moving average at $55.82/55.60.
Technical Analyst & Trader
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