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Written by: Nadia Simmons
Crude oil soared higher last week and also in Friday’s pre-market trading, which shows you why it was a good idea to remain cautious, even despite crude oil’s breakdown below the rising support line.
We previously wrote the following:
We saw a tiny breakdown on Wednesday, but it was not based on the decisive move lower, but rather based on the fact that time passed and the next daily candlestick started below the line. While this makes the outlook more bearish than on Tuesday, the breakdown is not confirmed and we think that the outlook is not bearish enough yet to justify opening a trading position at this time.
Unless crude oil moves sharply higher today, the breakdown will be confirmed, which will be bearish. However, since crude oil just managed to break to a new monthly high, the bearish implications of the above-mentioned breakdown will be nullified by the bullish implications of the breakout above previous May highs.
The above means that “when in doubt, stay out” phrase should now be applied, but at the same time, we think that a more decisive signal might present itself shortly. This is due to the proximity to the 38.2% Fibonacci retracement level based on the previous decline in crude oil. As this retracement is very close to the April highs at about $29 level, it means that this strong resistance area, which is confirmed by two resistance levels, might be able to either trigger a reversal or prove that crude oil is particularly strong right now – if it manages to break above it.
Summing up, depending on the way crude oil behaves relative to its nearby resistance level provided by the early-April highs and the 38.2% Fibonacci retracement based on the entire 2020 decline, we might get an opportunity to enter long, or short positions very soon, and increase our 2020 profits.