Crude oil: It smells likes profits

March 1, 2018 11:20 AM

Additionally, yesterday’s decline materialized on higher volume, suggesting that oil bears may gathering forces for the next attack in the coming days. This scenario is also reinforced by the current volume seen on the weekly chart.

From today’s point of view, we see that oil bears took the price of crude oil lower as we had expected. As we mentioned earlier, thanks to yesterday’s decline they gained next pieces to their puzzle. In other words, the sellers gained new allies who can support their pro-decline scenario.

Who are they?

The first of them is the above-mentioned fundamental picture of the oil market, which looks quite gloomy from the bulls’ point of view.

The second one is the verification of the breakdown under the lower border of the blue declining trend channel, which brings negative impact on the price remains in the effect.

And speaking about the verification…. When we take a closer look at the daily chart, we also notice that thanks to yesterday’s upswing after the market’s open light crude also verified the earlier breakdown under the previously-broken 61.8% Fibonacci retracement, which gave oil bears another reason to act.

The third ally is an invalidation of the earlier breakout above the 50% retracement.

The fourth is the breakdown below the lower border of the very short-term black rising wedge (we marked it with the black dashed lines). This development suggests that the commodity will drop to (at least) the area where the size of the downward move will correspond to the height of the formation (don’t worry, we will introduce you this level a bit later).

The fifth is an invalidation of the breakout above the 50-day moving average.

The sixth is the well known from our previous alerts volume. As you see on the daily chart, it moved visibly higher during yesterday’s decline, confirming the engagement of the bears in the fight for lower prices of crude oil.

The seventh ally is the sell signal generated by the daily Stochastic Oscillator.

Do the bears have some more aces up their sleeves?

In our opinion, at least one – the strengthening dollar.

What do we mean by that? Let us remind you the quote from our article published on February 23, 2018:

(…) higher values of the U.S. currency often weigh on prices of dollar-denominated commodities. For example, fuel imports for countries using other currencies become more expensive and potentially could even limit demand.

With the above in mind, we decided to check once again what happened with the USD Index since the above-mentioned alert was posted.

Crude Oil - U.S. Dollar Link Is Holding Tight

Looking at the current relationship between our “heroes”, we clearly see that the negative correlation remains in the cards, indicating that higher values of the USD Index will translate into lower prices of black gold if this tendency continues.

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About the Author

Nadia is a private investor and trader, dealing in stocks, currencies, and commodities. Using her background in technical analysis, she spends countless hours identifying market trends, major support and resistance zones, breakouts and failures. In her writing, she presents complex ideas with clarity that enables you to easily understand market changes, and profit on them.