Oil Bulls Attempt to Repair Yesterday's Damage
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We have seen a pretty sharp oil reversal yesterday. The U.S. session sent oil bulls packing. Not giving up, they’re attempting a comeback today. Geopolitical news to their rescue: the drone attacks on key Saudi pipelines. Emboldened by this tailwind, do the oil bulls stand a chance of reversing the tide of recent declines?
Let’s take a closer look at the chart below (charts courtesy of http://stockcharts.com).
Crude oil has moved higher during yesterday’s session, there’s no debating that. However, it gave up all its gains and then some, powerfully reversing lower. Its price is still trading below the 50-week moving average.
Then, there are the sell signals by the weekly indicators. Finally, the volume of last week’s decline was higher than that of the preceding week. All these factors suggest that another move lower may be just around the corner.
The daily chart provides more clarity. Crude oil moved sharply higher in yesterday’s early U.S. trading, but the resistance area created by the mid-April lows stopped the buyers. The price reversed sharply lower.
This looks like another verification of the earlier breakdown below this support-turned-resistance. It suggests deterioration in the coming days, today’s modest upswing notwithstanding.
Lower oil values will be however more likely and reliable only if black gold drops below the lower border of the blue consolidation and closes the day beneath it. To do so, the bears have to break below both the 50- and 200-day moving averages and also close the horizontal purple price gap. Until then, short-lived moves in both directions shouldn’t surprise us.
Summing up, the outlook for oil remains bearish. Oil has given up all its yesterday’s early gains and today’s modest upswing doesn’t change the picture. The fact is that oil is still trading inside the blue consolidation. The bears look to be holding the upper hand as the red horizontal resistance line (it's based on mid-April lows) has reliably kept yesterday’s gains in check. The position of the weekly indicators supports the downside move. The bears’ first objective is to break below both the daily moving averages. The short position continues to be justified.