WTI has been in a downward spiral over the last two and a half weeks and is now approaching a key level of support which should give us some important insight into market sentiment at these lower levels.
Throughout September, $42.70-43.20 was a major level of support for WTI as it established a new trading range and it will be interesting to see whether this remains the case.
Given how many times WTI rallied off this level previously, a break of it now would be very bearish. With that in mind and in the absence of any major support levels between here and 24 August lows, a break may suggest we’re going to see it move back towards $37.25 and potentially beyond.
Of course there are some levels before this that may offer support having done so previously (or provided resistance), such as $41.30 and $39.40, but I think this would only prompt some profit taking and consolidation or a small correction. September’s support strikes me as being far more significant.
As we near the September lows, it may be worth keeping an eye on the MACD and stochastic for divergences which suggest loss of momentum. We may already be seeing signs of this on the MACD but it really isn’t clear at this stage.
A failure to break below here may suggest the lower bound of the trading range remains intact. Alternatively, it could just be a case that this is viewed as an opportunity to lock in profit and further declines will follow either a consolidation or correction. Which it is should become clearer over the next week or so.