On Monday, both oil contracts started the new week how they ended the last one: higher. But the bullish momentum appears to have faded today, boosting the prospects of a possible resumption of the downward trend for oil prices.
Despite last week’s bullish close, WTI is set to end lower on the month. And with prices already turning lower on the week, we are not convinced that oil has bottomed out yet. Indeed, both oil contracts remain (comfortably) below their respective key pivotal levels: Brent holding below $75.90 and WTI below $71.60 prior swing points.
Thus, last week’s bounce may well have been a counter move against what could be a stronger downward trend.
If the above statement is indeed the case and the fact we have seen signs of bulls getting trapped above last week’s ranges today then this could be an indication that prices will now go on to drop towards the next big pool of liquidity which would be below last week’s low. However, if prices recover and go back above last week’s highs then one has to seriously consider the bullish scenario.
Taking a closer look at the daily chart of WTI we can see that the re-test of the broken bullish trend has offered strong resistance around the $70 handle today. The selling pressure has abated for the time being around short-term support at $68.30. But if this level gives way later on today or tomorrow then we could see the selling force gather momentum, potentially pushing WTI towards the next levels of support at $67.00 or $66.20. An even stronger support level is further lower at around $63.80, where the previous swing low meets the 200-day moving average. But it remains to be seen whether oil prices will drop that far.
From a bullish point of view, meanwhile, any move back above today’s high and resistance in the $70.00-$70.20 area would be a positive outcome in the short-term outlook. If this were to happen then WTI may go on to probe liquidity above the most recent high at $71.60 before deciding on its next directional move.
Source: eSignal and FOREX.com.