WTI has surged around $10 a barrel from its August 26 low as escalating tensions between the United States and Iran have kept geopolitical risk firmly embedded in crude prices.
But one thing I’ve learned during this conflict is that headlines are one thing, price action is another. And quite often, price action starts changing tone well before the headlines do.
That makes the recent price action above $90 interesting. Bulls have made repeated attempts to extend the move, yet a string of lengthy topside wicks shows they’ve struggled to make those gains stick. After such a pronounced rally, that failure to generate further upside raises the risk that the move may be starting to tire.
Momentum indicators reinforce the cautious message rather than providing an outright bearish signal. RSI (14) has moved back from overbought territory, while MACD is beginning to converge on its signal line, although both remain consistent with the underlying bullish trend.
For traders looking to fade the move, a sustained push beneath $90 could provide an opportunity to initiate shorts with a tight stop above the level for protection. Given there has only been one successful raid above $91 thus far, placing the stop beyond there may be an option.
For the setup to make sense from a risk-reward perspective, bears will need to take out the September 2 low at $88.50 a barrel. As for potential targets, $87.66, the August 20 swing high, is the first level of interest, followed by $86, an area the price has done plenty of work either side of recently. It also sits in close proximity to the minor uptrend running from the August 26 low.
It’s not an outright bearish setup yet. But when bullish geopolitical headlines are being met with increasingly tepid price action, it’s worth paying attention to how the market is behaving.
Good luck!
DS