Path to the 50-Day Average
Since the first pullback following the 10-day recovery shows prior resistance becoming support, buyers may again attempt to recover the 50-day average. That average has been an area of resistance since it broke in early August. Most recently, last week’s lower swing high of $59.00 encountered resistance near the 50-day average. For bullish sentiment to improve, crude oil needs to rise above and then close above that swing high, as well as the 50-day line, now at $59.14. Crude oil remains in a clear downtrend and short-term strength is just that unless the $59.00 swing high is taken out.
It is interesting to note the coming convergence of the 50-day average with an internal downtrend line (dashed) that looks like it starts tomorrow. Thereafter, the 50-day will represent a higher dynamic resistance zone than represented by the trendline. That would be the first time that the 50-day line had crossed above the internal downtrend line and would be a minor sign of improving underlying demand.
Importance of the $59.00 Swing High
Friday’s daily low of $56.77 presents key short-term support. Given signs of strength near the 10-day average, that low may evolve into a higher swing low, which is the first pullback after a bull breakout of a four-day bottom range six trading days ago. However, an inverted doji hammer candle pattern completed last week inside the larger bearish trend structure.
The period closed in a weak position in the lower quarter of the week’s range. It is a reminder that the bears dominate price action. A counter-trend advance into last week’s range does not clarify a shift in control, and therefore resistance is expected to turn price back down, unless there is a sustained upside breakout above $59.00.
Key Short-Term Support
Short-term support is at Monday’s low of $57.08. If that level fails to hold as support, then the bearish inverted hammer weekly pattern shows support at $56.77, with a weekly breakdown on a drop below there.
Summary
In summary, Friday’s low of $56.77 and high of $59.00 mark key near-term price levels for crude oil. A breakout in either direction is needed before the situation in crude oil is clarified.
