It was only a few weeks ago that WTI (NYMEX:CLN14) exploded convincingly through strong previous resistance at $105.00. It seemed like the long-suffering bulls had finally taken the upper hand, and forecasters started to turn their eyes upward for a possible run toward $108.00, $110.00, or beyond. As we always say though, it’s crucial to trade what you see, not what you think.
Even a cursory look at the chart revealed major cracks beneath the surface as the pair stalled out against the 78.6% Fibonacci retracement last year’s second half drop at $107.71. As price stalled out over the past few weeks, the MACD indicator rolled over and started to trend lower, showing a declining bullish momentum. Now, with the indicator approaching the “0” level, a shift to outright bearish momentum appears likely next week.
Meanwhile, the RSI indicator recently broke below its bullish trend line, potentially foreshadowing a trend line break in price itself. The icing on the bearish cake may have been yesterday’s large Bearish Marubozu Candle*, which indicated a shift to strong selling pressure and implied more weakness would be on tap for today.
With the fundamental picture for oil also shifting in favor of the bears, WTI may continue to pull back in the short term. As of writing, black gold is testing a key support confluence from its bullish trend line and the 50-day moving average around $103.50, but if that area is breached, a quick move down toward the 200-day moving average near $100.00 could be in the cards. On the other hand, bulls would like to see a recovery and sustained move back above $105.00 before waving any green flags.
* A Marubozu candle is formed when prices open very near to one extreme of the candle and close very near the other extreme. Marubozu candles represent strong momentum in a given direction.