I’m sure you have read, or maybe come across the poem by Stevie Smith entitled ‘Not waving but drowning’ which in many ways encapsulates the oil market at present. The reason is that over the last two months, as each attempt to rise to the surface and struggle higher, has promptly failed with the price action duly succumbing and sliding beneath the waves once again. The oil market is most definitely not waving each time it breaks the surface of resistance, and is most certainly drowning in a sea of over supply, as OPEC continue to control prices in an effort to drive the alternative producers out of the market.
From a technical perspective we are now approaching some interesting levels, as the reverberations from August continue to echo across the daily chart. The sharp three day move higher towards the end of August reflected the equally sharp move lower for equities, but as I wrote at the time, this was merely a correction and not a longer term shift to bearish sentiment for stock markets, with oil prices duly failing to follow through and consolidating within the volatility candle on day three. The subsequent price action was classic, and as expected, with oil prices trading within the spread of this candle whilst also rotating around the volume point of control (as shown with the yellow dotted line). The volume point of control represents not only an area of price agreement, but also a region with the highest volume in this timeframe, and is the fulcrum around which prices have been range bound for some time.
The rally of mid October failed to follow through with the shooting star candle also posting a pivot high in the $51.60 per barrel region before moving firmly lower, and back below the volume point of control once again before finally finding some support in the $42.60 per barrel region (as denoted by the blue dotted line of accumulation). The most recent rally was once again an attempt to rise, but on this occasion even failed to reach the previous high of September, reversing off the resistance area in the $48.20 per barrel area (as denoted by the red dotted line). Last week’s two bar reversal then signalled further weakness which was duly validated duly with prices again closing below the potential platform of support in the $44.50, a price point which failed to hold. Even yesterday’s doji candle does not appear to have provided any form of pause point or support, with oil prices opening gapped down to trade at $43.72 per barrel at the time of writing. The next logical level for oil now appears to be the potential support area in the $42.50 per barrel area, which provide some support in late October for the most recent rally.
Moving to the weekly chart, the current negative outlook for oil is perhaps even more clearly evident here. The first and most obvious signal was in early September with the ultra high volume and weak price action confirming the bearish tone, which was also confirmed in early October with a further attempt to rise on high volume, but once again failing. Last week’s price action validated this view with a wick to the top of the candle and rising volume both conspired to increase the downside momentum. Meantime, the volume point of control remains firmly in the $60 per barrel area, and adding its own weight to the longer term negative sentiment for crude oil prices.
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading