Crude's Charts are Starting to Look Worrisome
Macro Fundamentals
Crude futures price has been facing a lot of pressure lately. This is partly caused by the fears of diminishing demand due to the very high interest rate environment we're currently experiencing.
Recently, the Biden administration lifted sanctions on Venezuelan oil. This will bring more oil to the markets increasing supply. Since commodities prices are determined by the laws of supply and demand, then this will naturally bring down the price of oil.
More recent economic data from europe is pointing towards further contraction of the economy. Many analysts are calling for a recession the euro zone. This is also adding to the downward pressure on oil.
Technical Picture
A long term picture of oil looks absolutely bullish. But more recently, in the shorter term, crude future's price has been showing some signs of weakness.
The price action of crude has printed lower highs which it has not done in several months. You can even see an upward sloping head and shoulders pattern in the charts.
If there was a textbook on technical patterns, then it would say that once a head and shoulders pattern is confirmed, the downside that follows should be equal the distance from the tip of the head to the neck line.
In this is the case, then that would be over a 15% drop in price if this head-and-shoulders plays out. That seems like a bit much, in my opinion. At least until I see any other negative catalysts for the black gold.
Even with all of the geopolitical conflict taking place throughout the world, it still seems like oil prices want to drop in the short term. Even as US economic data pertaining to oil shows that there is still strong demand for the commodity. So why is oil looking so bearish?
Price Support
How far will oil prices drop? Nobody knows for sure. So now we must look for potential support zones. In the chart below I have highlighted the areas where I believe there is the strongest probability of a potential rebound in crude prices.
These price points have acted as strong support/resistance levels in the past. They could still be valid today. These are the 77.50 and 81.50 price points.
I should mention that the 83.00 price is a very strong Fibonacci support level. If the price drops below 83, then I would assume it is definitely headed to 81.50.
Conclusion
Personally I was still bullish on oil even after the initial selloff that started at the end of last month. But after the recent price action last week coupled with Biden lifting sanctions, I am warming up to the fact that there might be more downside in oil prices in the near future.
If there is no rebound very soon, then I will flip to looking for short positions rather than long.
I should point out that after the price of crude drops below a certain threshold, then many fracking companies will likely become unprofitable due to the high production cost of the process. There might be a short opportunity here.
As always, I am not a financial professional, and this is not investment advice. Be careful and be patient. Dont anticipate the market. Rather, participate in the market. Give your investments time. Don't be greedy. Don't invest in anything you don't understand. Don't put all of your eggs in one basket. Don't listen to the hype. Don't fomo or panic into or out of trades. Do your own due diligence. And just follow the trends. A trend is your friend. Good luck trading.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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wooper : it's going to actually reverse and shoot upwards
SpyderCallOP wooper: that is what I was assuming was going to happen. The charts are just looking a bit bearish lately
wooper SpyderCallOP: Please set a trailing stop loss on sell orders of .10 cents to .04 cents to prevent loss
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