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Oil bulls closed the gap and started Wednesday with another ally. What’s next?
Technical Picture of Crude Oil
Looking at the daily chart, we see that crude oil futures moved a bit higher during yesterday’s session and finished the day above the small pro-declining gap ($69.02-$69.17), depriving the sellers of a valuable ally in this area.
This positive development translated into a higher Wednesday open and resulted in a small pro-bullish gap ($69.24-$69.28), which, together with the buy signals generated by the daily indicators, triggered further improvement during European trading hours, which suggests that attack on the previously broken barrier of $70 may be just around the corner.
How did this price action affect the 4-hour chart?
Before I answer this question, let’s recall the quotes from yesterday’s alert:
(…) a potential reverse head and shoulders formation began to form.
What could happen if the bulls close ranks and push the price higher?
We’ll see an attempt to close today’s starting gap, which should also translate into a re-test of the first resistance area ($69.33-$69.39) or even the upper pink dashed line (it currently intersects the 50% Fibonacci retracement (based on the entire Nov.7 – Nov. 18 downward move), which could be a potential neckline of the reverse head and shoulders formation.
From today’s point of view, we see that the situation developed in tune with the above scenario, and crude oil futures not only closed the mentioned gap (as I wrote earlier) but also tested the 50% Fibonacci retracement, approaching the level of $70.
Although we could see a test of this resistance later in the day, we should keep in mind that the current position of the 4-hour indicators (the CCI and the Stochastic Oscillator remains in their overbought areas, creating bearish divergences between their values and the price) suggests that the space for gains may be limited and correction of the recent upward move should not surprise us.
If this is the case and the price reverses from there, the first downside target will be the 38.2% Fibonacci retracement (based on the recent rebound) at around $68.60. If it is broken, the way to the 50% retracement (at around $68.20) or even the 61.8% retracement (at around $67.80) will likely be open.
Summing up, crude oil futures closed Tuesday’s gap and opened Wednesday with a pro-bullish gap, which suggests a test of the barrier of $70 later in the day. Nevertheless, the current situation in the 4-hour indicators increases the probability of correction of the recent rebound in the coming day(s). Therefore, in my opinion, keeping an eye on the behavior of the bulls around the level of $70 could be the key to further profitable trades. Stay tuned.