WTI starting to break its seven-week bull trend recovery
WTI Crude has had a really good run over the last two months after bottoming out at $42. A near-50% rally in the price in just seven weeks reached a peak of $62.58 last week. However on Friday we experienced not only a daily but a weekly close below this seven-week bull trendline. A weekly close is always more significant and after a seven-week recovery in the longer-term bear trend, WTI Crude is obviously overbought. However there are other negative factors which should worry bulls now.
In the monthly chart below, you can see how WTI Crude crossed below the 200-month moving average in December of last year. On my chart the data goes back as far as 1983 and as a result the 200-month moving average only goes back as far as October 1999. Before December of last year, the price had only spent three months (October 2001 to January 2002) below the 200-month moving average in over 25 years.
We have so far spent the whole of this year closing on a monthly basis below this 200-month moving average. This moving average is at $61.22 for the month of May, which means we managed a spike above here last week , but failed to end the week above this important resistance. We must at least see two weeks’ closing prices above this level for a more positive outlook, but of course only a monthly close above here in three weeks’ time would confirm a break above.
The weekly chart below shows the last seven weeks of strong gains with blue-bodied candles , indicating strong momentum. However, last week’s candle formation is much less positive and may indicate that this strong momentum is running out of steam. The long upper wick which has been left after the price closed almost unchanged on the week suggests bulls are losing their power to sustain this trend. In addition you can see how the stochastic oscillator has entered overbought territory and the blue line is just crossing below the red line, which does indicate weakness ahead. A move back below the weekly 23.6% Fibonacci level of $57.54 this week would be an added negative signal.
The daily chart below shows how last Friday we closed below that seven-week trendline support and as I write on Monday morning we are seeing a small loss for the day so far, as we hover below that trendline. Looking at the stochastic at the bottom of the chart shows how the market has been overbought through most of April. The stochastic has now turned negative, as it points lower and may drag the price down, at least until it enters oversold territory.
Unless we can regain the $60-$61 area this week, risks of further profit-taking are increasing and a resumption of the longer-term bull trend certainly cannot be ruled out in the weeks ahead. The first important support level to watch this week is in the $57.90/57.50 area. We see a break below here as negative, targeting $56.60/56.40 and perhaps as far as the next Fibonacci support level at $55.00/54.75. This also happens to be the three-week low and will be a key area for bulls to defend, if a move lower this week is to be seen as a short-term correction in a developing bull trend.
Jason Sen – Technical Analyst & Trader
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