Oil Technical Update

Previous: Brent Crude Oil in Rising Channel Near Resistance Factors (8/21)

Brent Crude 1HChart 1:53PM EDT


The previous update on Brent crude noted a bullish market that was coming up against a pivot at 116.33. "The 116.33 level is also a previous support pivot from 2/10 and 4/18. To the left of the daily chart, this was also a resistance pivot on 11/8/2011, which was the high for a half-year consolidation period between August 2011, and February 2012."

Amazingly, the market stopped the rally in brent crude right at 116.36, under which it has been a sideways to slightly bearish market in the 1H chart. Today's (8/27) tumble from 115.35 to 111.50 was really what introduced the near-term bearish bias.

Furthermore, the 1H RSI has tagged 30, then remained below 60, and is now tagging 30 again, a sign of persistent bearish momentum developing. You can also see the moving averages bunch together and now starting to spread downwards, a sign of bearish breakout of sideways action. If a pullback fails to bring price above the 200-hour SMA, it would be another bearish clue. But has oil prices finally topped off?

Bloomberg explains that oil is falling because Hurricane Isaac will NOT have any significant impact. But this only explains failure to continue rallying. A reversal to the downside is likely a medium term technical retracement, in sync with some fading of risk-on trades back to risk-off.

The daily chart shows brent crude oil starting to break below a rising channel. Note the failure to break 116.33 pivot and therefore a failure to reach channel resistance. Sometimes, this is a forewarning for a break to the downside as the strength of the rally is exhausted. This exhaustion was also seen in the bearish divergence with the RSI.

If we do indeed top off in the short-term, price will have to break below the 110.80 support pivot, which would also break below the 200-day SMA. In fact this should be considered a support factor for now. But let's say we do clear it. Then one target could be the 105.70, 38.2% retracement of the 88.48-116.36 rally.

On the otherhand, if the market continues the uptrend and break above the 116.36 pivot and the 116.50 handle, the next pivot to monitor is in the 120.45-50 area. The ability to push back above 114/114.10 area should be the first clue to this failed topping attempt scenario, and bullish continuation outlook.

Brent Crude Daily Chart 2:00PM EDT


Fan Yang CMT is the Chief Technical Strategist, trader, educator and a of the main contributors to FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.