Crude oil has been in a sideways to lower pattern for the past month after October’s big rally. That rally took January Crude Oil futures over the 8/6 high of 77.45 (not shown on the chart below); that area is evidence of the old trading maxim that “broken resistance becomes support”).
From the high at 82.58 on 10/21, crude has had a series of lower swing highs, as the red trend line shows. At the same time the 77.22 area (the blue horizontal line) has served as good support, roughly lining up with the old 77.45 high. Selloffs to that level have resulted in rallies, but the strength of the rallies has been waning with each successive wave.
Getting ready to break down?
The most recent swing high occurred on Wednesday. Tuesday was a breakout day (NR4 and doji). Wednesday saw a rally to the down trend line, but the rally failed and crude closed with another doji, leaving Tuesday’s breakout setup unresolved.
Yesterday saw the resolution of the breakout setup. The selloff took out support at the daily lows and Fibonacci retracement support at 78.57. It tentatively setup a Taylor Buy today (see the ROC in the middle panel), with yesterday’s low at 77.61 for a reference point.
Today’s session started out OK for the bulls, opening a bit higher. The initial rally failed to take out the broken fib resistance at 78.57, and fell through yesterday’s low. From there crude broke the support around 77.25. Last week’s low at 76.27 is the next support point to watch.
Where does crude oil go from here? I will continue to key off the 77.22 level. True, it spent some time under that level last week, and had one close under it. I would discount last week’s break somewhat, as the short amount of time under it and the number of times it held gives the preponderance of evidence to the significance of that support. I’d view a decisive close under 77.22 as evidence that the bulls have likely lost control.
This is a sample of the analysis from my Swing Trader’s Insight advisory service. For information on STI, and to sign up for a free two week trial, visit here.
The information contained here includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
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