Oil bullish? That's what the chart's suggesting
- Oil pullback may have ended
- Fundamentals fans are skewed bearish
- Charts usually win when fundamentals disagree
One thing I did say to clients yesterday was that this pullback had actually gone "deeper" than I expected. But the key word in that last sentence is "pullback" as this is what this appears to be, and it may have ended.
Another thing I’d say is that upon my return everything I've read from the "fundamental brigade" on oil markets seems to be talking the bear skew. To be honest I'm absolutely fine with this. If the charts say something different to the fundamental consensus the charts usually win. Just think back to earlier in the year when oil was going to $20... Except it didn't!
So let’s stick to what I (allegedly!) do best and take a look at the charts, and see what they say about the potential future direction for the Brent and WTI contracts.
Last Tuesday and Wednesday Brent was nudging $41.50, but a strong recovery since has seen downtrend resistance broken and now we’re testing a key Fibonacci resistance at $45.82.
A move above $45.82 is likely to trigger further short covering/buying, the next target being $48.50 before we’re thinking about levels like $50.50, $51.50 and $52.80.
A look at the weekly hints that the recent pullback might just be forming the right shoulder of a Head and Shoulders bottom but this scenario is a while away from being something to get too excited about as the neckline (the level that would need to break to give a buy signal) is up at $52.50 at present.
Chart 1: Daily Candlestick – Brent Crude (front month continuation)
Chart 2: Weekly Candlestick – Brent Crude (front month continuation)
As with the Brent chart the bigger picture weekly chart is also hinting at a possible H&S bottom formation, but as with Brent we’re a while away from this being a reality and one should always guard against getting carried away with these ideas before the signal is given. The neckline on this chart is right up at $51.86.
Chart 3: Daily Candlestick – WTI (US) Crude (front month continuation)
Chart 4: Weekly Candlestick – WTI (US) Crude (front month continuation)