article 3 months old

Crude Oil: Further Weakness Ahead

Technicals | May 04 2023

Bottom Line 03/05/23

Daily Trend: Down
Weekly Trend: Down
Monthly Trend: Down
Support Levels: $64.38 (June 2023 Contract)
Resistance Levels: $83.61 / $90.00 / $94.71

[All prices US$/bbl Nymex futures]

Technical Discussion

Reasons for caution:
→ bounce off capitulation low in April 2020 has stayed robust to this point
→ Green energy vs Fossil fuel battles globally becoming heavily politicized
→ Elliott Wave count remains complex yet potentially still looking for higher longer term
→ bullish pennant pattern has triggered yet we may now have a fake out on our hands

We have now rolled over onto the June 2023 contract. We’ve been very positive on this chart bigger picture for some time, especially with the pattern breakout that triggered on the 3rd of April. Yet last night we were served a savage blow which means we could well have a pattern fakeout on our hands now. A pretty brutal outcome if this ends up proving to be the case as we have previously been watching what we felt was a bullish pennant pattern unfolding since the beginning of 2022.

So previous to last night’s trading, what we witnessed was price retesting the breakout zone of the pattern combined with the gap being filled that was left open when the pattern broke out back in early April. All this was very acceptable and in fact, more than expected. Larger patterns when they break out more often than not retest their break-out zones for strength. The unfortunate thing here though is that no such strength has been witnessed on the retest. At least not to this point in time.

So with the move off the Wave-7 low now having retraced 61.8%, this is pretty much the maximum in relation to what we would like to see. The problem though is that last night’s trading presented to us a wide-ranging price bar that closed on its low combined with an increase in volume. So it has sellers written all over it. And to rub salt into the wounds, when you see price bars with these types of characteristics, it generally means that weakness will be forthcoming in the following session as a minimum. So if we do witness further weakness tonight on the open, we are going to need to witness a positive close on high volume to repair the damage that has been done here. Price is well oversold on the dailies now so let’s see where things sit on close early tomorrow morning!

Trading Strategy

Our levels have been adjusted for the June contract with our long position having triggered at $81.21 with stops now placed at $64.37. As mentioned price action was concerning last night and if further downside presents over the coming days, we may have a pattern fakeout on how hands which means we will need to take some defensive action on our stop position ASAP to reduce risk. Let’s see what tonight delivers!

[Note: Last night oil prices fell another -4% – Ed]

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

This report may contain advice that has been prepared by The Chartist Pty Ltd (ABN 40 641 323 051). The Chartist Pty Ltd is a Corporate Authorised Representative (CAR No. 1282007) of Shartru Wealth Management Pty Ltd ABN 46 158 536 871, AFSL 422409. Any advice is considered general advice and has been prepared without taking into account your objectives, financial situation or needs. Because of that, before acting on this advice you should therefore consider the appropriateness of the advice having regard to your situation and your own objectives, financial situation and needs. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. If the advice relates to the acquisition, or possible acquisition, of a product (other than a security e.g. a CFD) then the client should obtain the relevant Product Disclosure Document and consider it before making any decision about whether to acquire the product. Past performance is not a reliable indication of future performance. This material has been prepared based on information believed to be accurate at the time of publication. Subsequent changes in circumstances may occur at any time and may impact the accuracy of the information.

Risk Disclosure Statement

THE RISK OF LOSS IN TRADING SECURITIES AND LEVERAGED INSTRUMENTS I.E. DERIVATIVES, SUCH AS FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER YOUR OBJECTIVES, FINANCIAL SITUATION, NEEDS AND ANY OTHER RELEVANT PERSONAL CIRCUMSTANCES TO DETERMINE WHETHER SUCH TRADING IS SUITABLE FOR YOU. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF SECURITIES AND DERIVATIVES MARKETS. THEREFORE, YOU SHOULD CONSULT YOUR FINANCIAL ADVISOR OR ACCOUNTANT TO DETERMINE WHETHER TRADING IN SECURITIES AND DERIVATIVES PRODUCTS IS APPROPRIATE FOR YOU IN LIGHT OF YOUR FINANCIAL CIRCUMSTANCES.

Technical limitations If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms