Are We Looking At A Dead Cat Bounce In Oil?

May 29, 2019

Oil bulls look to have arrested the slide as there hasn’t been a down day since Thursday. One could easily expect a more vigorous rebound, however. The nearby resistances remain and black gold has hardly gone anywhere today so far. After the long weekend, will the bulls muster more strength, or does the technical picture favor another trip south in the coming days? The answer isn’t as easy as might be inferred from the Alert’s title...

Let’s take a closer look at the chart below (chart courtesy of http://stockcharts.com).

The daily perspective shows crude oil having moved a bit higher after Thursday’s landslide. The upswing of several trading sessions invalidated the earlier breakdown below the lower border of the declining blue trend channel and the dashed green support line (based on late-March lows).

Although this is a positive event for the bulls, we should keep in mind that they haven’t reached even the 38.2% Fibonacci Retracement (based on the last week’s decline). This increases the likelihood of seeing another downswing in the coming days. Especially so, when we factor in the weekly picture of the commodity and the similarity to the recent past. Let’s quote our Friday’s alert.

(…) Crude oil has created a similar gap in November 2018 – that’s not too far from yesterday’s gap. Back then, oil bears also created a long red candlestick on very high volume (it’s marked with a blue vertical line). There was an attempt to repair the damage in the following days but the bulls’ efforts failed after a few days, and light crude declined again.

Will the history repeat itself? It’s quite likely. There’s also one more thing speaking for the bears today – back then, the Stochastic Oscillator supported the buyers, now it visibly favors the sellers.

How low could the oil price go next? Let’s remember once more our Friday’s alert(…) If the commodity extends losses from here, we could see a drop even to around $53.50, where the size of the decline corresponds to the height of the channel.

But the first target for the sellers will be a bit higher – at around $54.70, where the size of the downward move equals the height of the rising red wedge (as marked with yellow rectangles).

This is the area marked by the 50% Fibonacci retracement, the late-February and early-March lows. They together create the green zone serving as the next important support for the bulls.

Summing up, the outlook for oil is bearish. After the Wednesday and Thursday’s sessions that have shaken the oil market, the bulls have been unable to engineer a fast price recovery. Black gold is still trading beneath important short-term resistances, its rebound from the lower border of the declining blue trend channel and the dashed green support line. The weekly indicators and volume comparison continue to support lower prices and the picture concurs. The short position continues to be justified.

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Nadia Simmons

Forex & Oil Trading Strategist

Sunshine Profits - Tools for Effective Gold & Silver Investments

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Nadia is a private investor and trader, dealing in currencies, commodities (mainly crude oil), and stocks. Using her background in technical analysis, she spends countless hours identifying market trends, major support and resistance zones, breakouts and failures. In her writing, she presents complex ideas with clarity that enables you to easily understand market changes, and profit on them. Nadia is the person behind Sunshine Profits' 3 premium trading services: Forex Trading Alerts, Oil Trading Alerts, and Oil Investment Updates.

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