WTI crude likely to have ended its two-year recovery
On 8 November I wrote about how WTI crude had gained 35% in less than five months. Bulls have held control of this market since the very beginning of 2016 and the price has more than doubled now from a low of $26.05 to a peak of $59.05.
Weekly chart: December 2015 to date
More importantly, I warned that the price was ‘approaching important longer-term 38.2% Fibonacci resistance at $58.97. Coupled with that is the equally important downward-sloping 200-week moving average, just starting to dip below this Fibonacci level… If you are a WTI crude bear looking for a low-risk selling opportunity, it could be worth trying shorts in the $59-$60 area with a stop above that 2015 year high. There is great profit potential on a short position if we reject those resistance levels.’
Here is a reminder of the weekly chart dating back to the 2013 peak at $112.24. This again shows that important 38.2% Fibonacci resistance at 58.97 and the downward-sloping 200-week moving average.
Last Friday the price peaked at exactly $59.05 in severely overbought conditions. Although there is no particularly negative pattern or candle formation to back up my theory of an end to the two-year recovery, I entered a short position at the important resistance level.
The price so far has dipped just over two dollars to a low at $56.75. At this stage I see further risks to the downside targeting $56 to $55.80 and perhaps as far as strong support at $55.10/54.90.
This will be a big test and I do expect a decent bounce, showing the bulls are still in short-term control. The strength of the bounce will tell us whether oil has turned, as I believe it has. A peak at or just below $59 will form a small but negative double-top pattern.
A break below three-month trendline support at $54.30 would act as the next sell signal. This would target $53.90 and probably as far as strong support at $52.60/52.30.
The only way bulls can regain control now is to break above the upward-sloping 18-month trendline at $61.00. If I am wrong and oil breaks above $61.00, this acts as a strong buy signal with a break above the 2015 high at $62.58, offering further buy signals to target $63.70/63.80 and $65.50/65.70.
Technical Analyst & Trader
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