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Two candlesticks’ formations, price gap and indicators signals. What does it tell us about the price’s future?
In today’s article I decided to take a closer look at the current technical picture of Hess Corporation. Why? Because many important technical factors appeared, which changed the very short-term picture of the stocks.
What can we expect next?
Before we move on to the summary and answer this question, let's dive into the world of charts together and analyze the behavior of the price and market participants over the past weeks. They will give us valuable tips for analyzing charts in the future. Have a nice read!
Let’s start today’s analysis with the short-term chart and the quote from the last commentary on Hess Corporation published on Nov.29, 2023:
(…) the upper border of the blue channel in combination with the upper line of the red gap continue to serve as the nearest resistance, which suggests that as long as there is no successful breakout above these levels, the way to the north is closed and reversal from current levels should not surprise us.
Looking at the daily chart, we see that the combination of the above-mentioned resistances was strong enough to stop the bulls (as expected) and lure oil bears onto the trading floor.
As you can see, a 4th in a row unsuccessful attempt to move higher encouraged oil bears to attack strongly, which translated into a sharp decline that took the price not only to the lower line of the blue channel, but also below it.
This show of the bulls’ weakness opened the way to lower levels. Although the buyers tried to come back to the channel, their attempts finally failed and the stocks slipped not only to 135.77 (where the size of the downward move corresponded to the height of the channel), but also temporarily dropped below the 61.8% Fibonacci retracement based on the entire mid-March-mid-Nov upward move (and marked on the chart below).
What happened next? The stock started several days of consolidation, which effectively allowed the bears to take profits off the table and discouraged them from further attacks.
As a result, the bulls invalidated the earlier small breakdown under this support, which together with the buy signals generated by the daily indicators triggered a quite sharp jump towards the north.
This show of strength created an island reversal candlestick pattern (as a reminder, it consists of three important periods: two gaps in the same direction and a consolidation period – I marked them with a green ellipse on the above chart), which mobilized even more buyers to join the northbound march.
Thanks to their activity, the price came back not only above the previously broken lower border of the blue channel, but also climbed above it in the following days. Thanks to this move, the stocks also moved above the red gap (that caused them so many troubles in November) and closed it, opening the way to higher levels.
Their happiness, however, did not last very long and the road to the north was not as wide open as it might have seemed. As you can see on the chart, the 50% Fibonacci retracement (based on the entire Oct.-Dec. downward move) in combination with the proximity to the next red gap (150.33-152.71) stopped them, triggering a pullback.
On Dec.28, 2023 the sellers started the day with another red gap (147.20-148.58), which accelerated the decline and caused the closure of the green supportive gap (144.61-147.15). This was a negative signal, which deprived buyers of a valuable ally.
Despite this deterioration, the bulls tried to push the price higher, which resulted in a fresh multi-week high of 149.90 on Jan.4.
Did this increase change anything in the short run?
Not really. Why? Because the above-mentioned red gap (150.33-152.71) formed on Oct.27, 2023 together with the 50% Fibonacci retracement (based on the entire Oct.-Dec. downward move) was strong enough to stop the bulls once again.
Thanks to their weakness, the sellers came back to the market and pushed the price sharply lower, creating a pro-declining dark cloud cover candlestick formation (marked with a red ellipse on the above chart) and invalidating the earlier tiny breakout above the mentioned retracement and the previous peaks.
These strong negative developments triggered further deterioration and stocks slipped even lower, breaking below the late-Dec. lows, the 38.2% Fibonacci retracement (based on the Dec.-Jan. upward move) and the 50- and 200-day moving averages.
Additionally, the bears opened Monday’s session with another red gap, which now serves as the nearest resistance. Yesterday, the bulls tried to close it, but very soon after opening the session they gave in to the pressure of sellers, which resulted in another red candle and a fall below the 50% Fibonacci retracement.
What’s next?
Taking into account Monday’s gap, earlier bulls’ weakness, pro-declining dark cloud cover pattern (which reinforces the major short-term resistance zone based on the 50% Fibonacci retracement and the gap from Oct.27, 2023) and the sell signals generated by the daily indicators, it seems more likely than not that further deterioration is just around the corner.
How low could stocks go in the coming days?
In my opinion, the next downside target for the sellers will be the 61.8% Fibonacci retracement (based on the Dec.-Jan. upward move), which corresponds to the upper border of the green supportive gap (136.31-138.19) formed on Dec.14, 2023.
This is the key short-term support, which is part of a previously mentioned pro-bullish formation (an island reversal candlestick pattern), therefore it is crucial for the further fate of the bulls on the trading floor. Why? Because its potential closure may lead to a test of mid-Dec. lows.
Do the buyers have anything on their side in the short term?
In my opinion, only the volume (which was smaller on Tuesday), which could suggest that the bears were not as involved in yesterday's declines as before. Nevertheless, all the above-mentioned pro-declining technical arguments support the implementation of the pro-declining scenario in the coming day(s).
It is also support by the medium term-picture. Why? Let’s take a closer look at the weekly chart below.
From this perspective, we see that the last week’s candle has a prolonged upper shadow, which means that the sellers created a shooting star formation, which occurs after an upward move and indicates that the price could start falling – just like it happened.
At this point, it is worth noting that we saw a similar candle in mid-Oct. Back then, it preceded a bigger decline, which suggests that the bears may not remain indifferent to its appearance and could re-enter the market decisively in the coming week(s).
Additionally, the week started with the mentioned red gap, which in combination with the sell signal generated by the Stochastic Oscillator increases the probability of further decline and (at least) a test of the nearest important support zone.
Summing up, although the bulls showed some strength at the beginning of the month, the combination of resistances stopped them successfully, triggering a reversal and decline. Thanks to this price action, the bears gained many important allies (invalidation of the earlier breakout, two pro-declining candlestick formation, sell signals generated by the daily and weekly indicators and the red gap, which started the week), which suggest that further deterioration seems more likely than not and a test of the nearest important support zone is just around the corner.
Related: BP & EOG: Candlestick Formations