The Consolidation in Oil Prices Might be Over

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The Consolidation in Oil Prices Might be Over

Oil prices stabilized in February. WTI Crude oil rallied from a 43.57 low on the year up to 54.24 before being trapped in a sideways mode.

WTI Crude Oil 4H Chart 2/19
wti crude oil 4h chart 2/19
(click to enlarge)

The 4H chart shows that it has been in somewhat of an ascending triangle. However after failing to breka above 54.25 three times, it looks like it is capitulating today as price plunged below 50 and is now breaking below the ascending triangle support. The 4H RSI has clearly broken below 40, showing loss of the bullish momentum. Price is now threatening to break below the cluster of 200-, 100-, and 50-period SMAs, which would revive the bearish bias.

If price pull back up but fails to limb back above 51, the bears would likely be in control of the market, and the pressure would be back towards the 43.60 area.

If price pulls back above 52, WTI Crude would be back above the moving averages, and the consolidation scenario would likely be extending with short-term upside towards 54.24 with risk of breaking higher.

Brent Crude Oil 4H Chart 2/19
brent crude oil 4h chart 2/19
(click to enlarge)

Brent Crude has also been consolidating, rallying from a low on the year at 45.23 to 63 this week before retreating. The bullish structure in the short-term is still intact, but clues from WTI Crude price action suggests the support levels are vulnerable. Still, a break below 54.00 might be needed to revive the bearish outlook and put pressure first towards the 48-50 price range (common level from mid-January to the end of the month). Then, below 48.0, the 45.23 low would be in sight, with risk of Brent Crude breaking lower in continuation of the prevailing downtrend heading into the year.

If price manages to climb back above 60 however, the bearish scenario might need to be shelved for a longer period of consolidation before we can see whether oil prices still have further downside risk.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.