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Crude Oil Price Reverses from Key Resistance: $50 in Store?

Crude Oil Price Talking Points:

  • Sellers haven’t left the Crude Oil market after a brutal month of May. The latter-half of last week saw prices bounce from a key support zone, but sellers re-appeared this week after prices touched the resistance zone looked at in the early-month forecast for Crude Oil Prices.
  • Crude Oil has pushed down to the 51.50 area that was looked at for an initial target, but might bears be aggressive enough to elicit a run down to the 50 psychological level?

Crude Oil Collapse Continues After Resistance Inflection

Crude Oil prices experienced a stark change-of-pace in the month of May. While Oil prices had previously tracked the return of the risk trade fairly-well, bottoming out around Christmas and running-higher through Q1 and into April; sellers showed up in May, with aggression, to erase a large portion of that move. In short order, Crude Oil prices had cut through a number of support levels, making a hard-charge down to fresh four-month-lows.

In the Crude Oil Technical Forecast to start this month, I had looked at a series of levels that remain in-play. The resistance zone investigated that runs from 54.49-55.57 has now caught two different resistance reactions. The support level around 51.50 that was looked at for initial targets has now caught two separate inflections; the first of which was a mere speed bump on the way-lower while the second is helping to hold the lows right now.

WTI Crude Oil Four-Hour Price Chart: From Resistance to Support – Now What?

crude oil four hour price chart

Chart prepared by James Stanley

Crude Oil Prices: More Room to Fall or Ready to Retrace?

At this point, the big question is whether the short-side move has anymore juice left to squeeze, and it may. But at this point, initiating fresh bearish exposure could be of a challenge considering how far away prices have fallen from the recent swing-high.

This can then present a few differing scenarios:

With current prices showing support at a confluent area on the chart, and with sellers thus far showing an unwillingness to test last week’s lows, and the door may be opening for a retracement move given this current higher-low to go along with last week’s higher-high. This bounce may run up to the 52.50 psychological level or perhaps even the 53.00 level which provided a bit of swing support on Monday. These levels can function as near-term targets on reversal/retracement plays or, alternatively, can be integrated by sellers as areas to look for lower-high resistance potential.

WTI Crude Oil Price Two-Hour Chart

crude oil two hour price chart

Chart prepared by James Stanley

On the short side of the move, the current quandary would be one of chart position. With resistance almost a full $3 away, the risk would simply be difficult to justify given price action’s proximity to support. If sellers are able to break to fresh lows, the 50 psychological level awaits; and incorporating a simple one-to-one risk-reward would necessitate a push down towards 48.50, which could be difficult to target given the number of events that would likely need to happen to elicit a clean cut through all of that support.

Instead, sellers can look for a bounce up to one of the aforementioned resistance levels or, alternatively, look for downside breakout strategies in order to capitalize on a ‘fear’ theme that hasn’t yet left Crude Oil markets. A break-below this week’s low at the 51.47 Fibonacci level opens the door for a test of last week’s low; after which the 50 level comes into play for short-side target potential.

WTI Crude Oil Eight-Hour Price Chart

crude oil eight hour price chart

Chart prepared by James Stanley

To read more:

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— Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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