Last month the crude oil futures hit the target much earlier than it was planned. When the target was reached, I started to think of a reversal to come as the overall structure of the chart implies it. This thought was based on the deep retracement of the price, the overall completion of the pullback, which hit the broken resistance, and not in the last place due to the 100% progress of the CD segment (CD=AB). I shared it with you along with the crucial downside triggers in the weekly chart of my earlier post.
Let’s see how you felt the market those days in the last ballot’s results below.
You are just amazingly accurate in predicting the future! Again, the majority of you were absolutely right as crude oil futures established a new high of $66.60 beating the earlier top of $64.8 for almost two dollars. I am very grateful to all of you who read my posts here at INO.com and support my chart experiments with likes and votes.
Let’s move on as the weekly chart below shows that not only the new high was established.
I would like to start from the flashy sign on the chart, the top of a pullback, which has a weird weekly candlestick. Despite that, the price could establish a new high of $66.6; the very same candle closed far below that top at the $62.8 or almost $4 down. This shaped the red bearish body of the candlestick and the long wick on the upside. Such a situation reflects a high selling pressure that appeared at those levels.
Earlier in my life, I got an experience of trading crude for an oil producer, and that is why I understand why sellers were nimble to lock in the thick margin at such a high price. I guess they hedged the largest portion of upcoming production to extend the period when they need to raise less funding to carry on their business. Short sellers should be there as well as the cooling global economy amid bitter trade wars can’t afford to pay that high price.
There is a crucial observation that confirms the power of the trends. Four candlesticks in black trendline’s contact area at the pullback’s climax closed within the narrow range of $62.8-$64 just around the axis of the trendline at the $63. It offered a resistance, strong enough to reverse the price down.
Crude oil futures pierced the first downside trigger at the $58.1 last Thursday. In the background, the RSI indicator breached below the crucial 50 level and turned bearish. So I prepared the new plan for the downside game with annotations for you.
As always the second leg of the move is easier to tailor as we already have clues from the first one, and we can make the required measurements. The CD segment, which starts from the recent top of $66.6, could reach three target levels. The notch at the $32.1 was marked as D1 where CD=AB segment. It is not enough to tag the second target at the former bottom of $26 as there is a room of $6.1 left. The third target was calculated as usually with the next Fibonacci ratio of 1.272, and it is located at the $22.7 (D2). This would be more than enough to tag the multi-decade trough.
The first invalidation trigger of this bearish plan is located above the top of the recent correction beyond $63.8.
To judge if these targets are conservative or too optimistic, let’s look at the last monthly chart below, which gives a bird’s eye view.
Look at this monthly chart above, how volatile is the price of crude oil! The range of the moves is just astonishing.
It looks like we got three significant moves down within a giant orange Falling Wedge. The first move had a terrifying vertical trend with almost right angle as the price dropped like a rock. The second move had a less sharp angle with a large consolidation inside.
We are in the third and possibly the last move down. Its apex was established right at the topside of the Wedge as we again witness the power of the trends. I built it with the angle, which is sharper than the second move as the intermediate pullback was way shorter. The third down arrow points at the $20 area, which confirms that the D2 target in the previous chart is not overly optimistic.
INO.com Contributor, Metals
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.