WTI crude oil hits important resistance
WTI crude oil has been in a sideways trend for over a year. A good recovery from the January/February 2016 low of 26.19/26.05 saw prices almost double as we reached 51.67 within just four months. Since that peak in June 2016 we have traded in a sideways trend. We dipped back to 39.19 before making it as far as 55.24 by the start of this year.
As you can see in the weekly chart above, prices dipped back to the November low of 42.20 by the end of June 2017. So the question is, how far can we bounce on this leg higher from the June low? So far we have reached 50.43. This represents a strong bounce of over $8 (over 20%) in just six weeks.
In fact at least half of this move occurred just last week. So could it be that WTI crude is now gaining momentum in the latest recovery phase?
The daily chart above shows activity back to April 2016, displaying the important 16-month rising trendline.
If we zoom into the daily chart below we see more clearly how prices topped not far from this trendline at 5090/99. We actually topped last week at 50.41. This is about halfway from the 61.8% Fibonacci resistance to the 16-month trendline resistance.
As you can see, we have rejected these two important resistance areas. Oil is now struggling to hold above the red 200-day moving average at 4950/40. Struggling in overbought conditions I should add, as we hold below the less important but still significant five-month downward-sloping trendline from the end of February.
These are three significant challenges for bulls which so far they have failed to overcome. Failure to hold above the 200-day moving average at 4950/40 signals weakness to first support at 4850/40. A break below the 100-day moving average at 4800/4790 adds pressure targeting quite strong support at 4725/15.
A bounce from here is likely on the first test. But, if you try long positions, looking for a bounce to the 4800/4850, use stops below 4675.
Clearly bulls need to close the week with prices above last week’s high at 5043 to regain control. However, remember that the important 16-month rising trendline lies around 5100. It is only a sustained break above here that puts bulls in the driving seat. This would initially target the May high at 5200.
Technical Analyst & Trader
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