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Oil Price Outlook: Crude Decline Testing Critical Trend Support

Oil Price Outlook: Crude Decline Testing Critical Trend Support

2019-05-03 17:30:00
Michael Boutros, Technical Strategist

Crude Oil Prices are down 1.1% this week after posting an outside-weekly reversal off key resistance into the close of April. The decline is now testing multi-month trend support and we’re looking for a reaction in off these levels. These are the updated targets and invalidation levels that matter on the Crude Oil (WTI) charts heading into next week. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.

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Crude Oil Daily Price Chart

Crude Oil Price Chart - WTI Daily

Technical Outlook: In my latest Oil Price Outlook we noted that, “Failure to close a weekly candle above this critical resistance zone (64.40) leaves the long-bias vulnerable near-term.” Oil prices plummeted more than 8.4% from that high before rebounding just pips from confluence support today at the 23.6% retracement of the December advance / February trendline at 60.88. Note that the 2018 open rests just lower at 60.06- a break / close below this threshold is needed to suggest a more significant high is place.

Confluence resistance stands at 63.43/68- a region defined the May open, the June low and the 61.8% retracement of the 2018 range. Ultimately a breach / close above 66.06 is needed to mark resumption of the broader uptrend.

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Crude Oil 240min Price Chart

Crude Oil Price Chart - WIT 240min

Notes: A closer look at price action shows oil trading within the confines of a near-term descending channel off the April highs with break below the objective weekly opening-range taking price into the lower parallel today. Initial resistance is back at 62.45 backed by the weekly open / 38.2% retracement at 62.90-63.09- look for a reaction there IF reached with a breach above 63.68 needed to validate a larger reversal. Key near-term support rests at the 100% ext / 200-day moving average / 23.6% retracement at 60.45/60.88 with a break below 60.06 needed to suggest a larger correction is underway.

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Bottom line: Crude prices are testing confluence support and leaves the immediate short-bias at risk while above this range neat-term. From a trading standpoint, look for possible price exhaustion ahead of 63.68 IF oil prices are indeed moving lower. Ultimately, I’d be interested in fading weakness into a fresh low closer the 60. Review my Top 2019 Trading Opportunities for a look at the longer-term Crude Oil outlook.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Crude Oil Trader Sentiment

Crude Oil Trader Sentiment - WTI Positioning
  • A summary of IG Client Sentiment shows traders are net-long Crude Oil- the ratio stands at +1.05 (51.1% of traders are long) – neutralreading
  • Long positions are11.1% higher than yesterday and 16.7% higher from last week
  • Short positions are21.9% lower than yesterday and 6.5% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Oil prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil - US Crude-bearish contrarian trading bias.

See how shifts in Crude Oil retail positioning are impacting trend- Learn more about sentiment!


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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

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