The cascade in WTI crude oil futures prices since the middle of the year has been breathtaking. Yet, having undercut the 2009 low, there isn’t any technical support to indicate where buyers are likely to act. And a bear pennant on the daily chart suggests the market could be setting up for another leg down in the coming weeks.
A bear pennant characterizes a period of controlled short covering in the context of a downtrend in which selling pressure is too strong to allow for any meaningful recovery and price churns. A tight symmetrical triangle shape emerges when trend lines are drawn across the highs and across the lows. Ultimately, once momentum traders buying back to cover short positions are exhausted, price breaches the lower barrier of the pennant and the downtrend resumes.
As you can see below, the pattern is still evolving. We’d need to see a decisive fall below 55, preferably amid heavy volume, in order to consider a breakdown confirmed. So, even though WTI crude has plummeted, there still could be a trade on the short side of the market.
Elsewhere, the breakout in euro futures from a falling wedge pattern that I wrote about on December 9th failed and price has dropped lower still. Indeed, as the year comes to a close, existing trends are still in place – stocks and the dollar are rising, while the euro, commodities, and emerging market equities are falling.
Good trading, everyone.
