Crude Oil Fills the Gap. Now What?

Alan Penny

30 September 2019

3 min read

  • Crude oil markets form very bearish candle
  • Three hammers broken
  • Testing minor trend line
  • Major trend line under current action

The West Texas Intermediate Crude Oil market has broken down rather significantly during the trading session on Monday to kick off the week, breaking below the hammer that formed during the Friday session. However, the market has also broken below a couple of hammers from the previous week, and that is in and of itself a very negative sign. After all, the market was very resilient for three days in a row. But as the market closes on Monday, it’s at the very bottom of the range during the day, which typically means that there will be some follow-through.

Trend lines

oil chart

WTI crude oil

Looking at the trend lines on the chart, it is possible that there could be a bit of a bounce in this area. That said, the fact that the market is closing right at the trend line suggests that the larger trend line will be tested. That means that the market could go down to the $53.50 level, and possibly even lower than that if the downtrend can be broken. The negativity of the candlestick cannot be overstated, especially in the scenario of breaking three hammers.

Technical analysis

As you would expect, the technical analysis is very negative at the moment because of those three hammers being violated. One of the most powerful signs of bearish pressure is to break down through one hammer, let alone three. This very rarely happens, and now that the gap has been filled, one would expect a bit of a bounce. Beyond that, the market has attempted to do just that but cannot hang on. This is about as bearish-looking as the chart gets, with the exception of the trend lines.

Just above the recent candlesticks, we have the 50-day EMA, which was technically important but did not offer support. It now looks to offer resistance and squeeze prices below those of trend lines. The 50-day EMA is starting to turn lower, which is also a very negative sign.

The trade going forward

The trade going forward is more than likely going to be a short position. On a break down below the bottom of the candlestick for the trading session on Monday, the initial target will be that trend line below at the $53.50 level. If that level gets violated, it’s very likely that the round figure of $50 will be targeted, as it has offered significant support in the past and has a certain amount of psychological importance attached to it.

If the market were to recover, it’s likely that sellers will return as they have over the last four sessions. Unless something fundamentally changes in the crude oil supply and demand situation, it’s difficult to imagine this market rallying. After all, the drone strike didn’t cause major permanent damage, and beyond that, the global economy is slowing down. That is bearish for petroleum.

Written By
Alan Penny

Other related news

Do you have any experience with this broker? You can share it here:

Your email address will not be published. Required fields are marked *