Last week I wrote about the persistent downside move in crude that was likely beginning.  Since publishing that article, A Crude Breakdown, crude has shed $3.00/barrel.  In this week’s article, I want to walk through the objective analysis process that lead to that anticipation and it starts and ends with volume-at-price.

Click here to watch a video explaining how to read markets using volume at price.

Crude oil had tested an old high-volume area resistance at 50.91 – 52.91.  Old high-volume areas (and not-so-old high-volume areas) are reliable and consistently accurate levels of support and resistance.  If you are using other methods to find support and resistance (moving averages, Fibonacci, Bollinger bands, etc), you need to start using volume-at-price profiles instead.  There is no superior method for finding robust support and resistance zones.

Before and after crude tested into the high-volume area resistance at 50.91 – 52.91, it created a balance area with a lower extreme at 45.83.  After trading rotationally within this balance area for a time, crude then broke below the lower extreme of the balance at 45.83.  This was the signal that the near-term has turned bearish and left resistance above at 45.83 (broken support turned resistance at the balance area extreme) and 47.75 – 49.47 (the high-volume area of the balance).

Crude’s initial decline following the breach of 45.83 moved to test the next lower critical high-volume area support at 43.03 – 44.79.  As expected, this zone provided support and caused a temporary bounce and balancing amid the near-term bearish bias.

It took a few sessions for the bears to overcome the bulls, but once this 43.03 – 44.79 support zone was breached, the path lower was clear down to the April lows where the last run higher initiated from.

This was the reason for expectation outlined last week that,

“The break below 45.83 shifted the bias to bearish but with established support at 43.03 – 44.79 there was no meaningful downside progress initially.  Now that this zone of support has been taken out, look for crude to work lower in a more persistent manner toward lower levels of support at 37.61 and 35.24.”