If you can’t get crude rallying on the threat of Iranian barrels being removed from the market and energy exports from the Gulf being permanently blocked, what does that tell you about where the path of least resistance may lie for crude oil in the near term?
That’s the question I and others are likely asking themselves in the wake of Monday’s unusual decline.
First we saw WTI comprehensively rejected at downtrend resistance that has been in place from the high set in the early stages of the Iran war late last week. Then Monday’s unwind completed a three-candle evening star, warning of reversal risk following the bounce from early August.
Now, that does not mean we’re about to see some immediate unwind. But it does make price action today important for confirmation.
The level I’m watching is $83.60 a barrel. It is only a minor, although it has acted as both resistance and support several times this month.
A break and close beneath $83.60 would build confidence in the prospects for a sustained extension of Monday’s move, presenting a setup where shorts could be initiated beneath the level with a tight stop above for protection, targeting lower levels.
The first would be $80, where the price found support in the middle of this month. Beneath that, the next area of interest sits between $78.40 and $77.33 a barrel, with the confluence of the 50-day and 200-day simple moving averages and horizontal support at $77.50.
If WTI were to break the uptrend running from the July lows, it would bode well for a possible retest of the lows set in July, given the price has been coiling in a symmetrical triangle structure over the past couple of months.
Like the price action, the message from the oscillators is one of increasing caution for the bulls. RSI (14) has broken the uptrend that had been in place from the August low and is now sitting only marginally above the neutral 50 level. MACD is also converging with the signal line, although it remains positive.
The broader message is that upside momentum is showing signs of dissipating, adding to the sense that directional risks may be shifting.
Of course, If I’m wrong and we see a break above downtrend resistance running from the March highs, it would point to an increased probability of an extension of the bounce from the low set earlier this month, putting $87.65, $93.30 and $95 a barrel in play for longs.
Good luck!
DS