WTI Crude – False Breakout Not a Bullish Signal

Yesterday I suggested that the downward momentum in WTI appeared to be waning despite breaking through the ascending trend line – 24 August lows – and we could therefore see a false breakout (WTI Crude – Bearish Case Grows on Inventory Build).

WTI Daily

While this could be seen as a bullish signal, I’m not convinced at this stage. As I highlighted yesterday, I would like to see a good reversal set up before possibly changing my view and while yesterday’s completed candle is quite bullish, alone it is not entirely convincing.

Moreover, as I suggested may happen, we have seen another move by the bears back towards the trend line so there is still clearly a desire to see this trend line broken.

If the trend line is broken again, the bulls may be less willing to protect the position given that there is still clearly so much appetite for a move lower.

WTI 4hr

It’s worth noting as well that what we’re actually seeing right now is consolidation which could ultimately lead to the formation of an ascending wedge, or something similar. Given the move that preceded this, that would be bearish and the break of it could start the next leg lower.

Under these circumstances, the next key level for me will be $42.70-43.20 which was a strong level of support throughout September.

Obviously, nothing is ever guaranteed and I continue to look for signs that the bulls are regaining control but for now, I think the bearish case is still much stronger.

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.