Following the sharp decline on Monday’s open, it seems that bears have lost all the wind in their sail. Prices pushed up higher to a high of 107.5 during late Asian early European session, riding on the strong risk appetite that followed the rallies of Asian and European stocks. However, the failure to breach 107.5 resistance underlines the bearishness of Crude Oil, and should have triggered a stronger bearish reaction given that we’re in a strong bear trend since 28th August. Instead, prices continue to stay around 107.0, and is now trading slightly above the trendline, suggesting that the bearish pressure may be alleviating somewhat.
It seems that the only reason price continues to remain bullish is due to the strong risk appetite seen in Asian markets today. This does not sound like a strong reason for bulls to continue pushing higher, but then again irrational market has proven time and time again that they can last longer than we can stay solvent for. As such, it is important that traders seek further confirmation of a bear trend renewal before entering short. In this case, a strong confirmation would be price trading back below the descending trendline, but preferably we should see 106.0 being broken as well. Even if price does not break back below the descending trendline but straddles the trendline lower instead, we could still see acceleration lower should 106.0 is broken. Another potential confirmation can be found should Stochastic indicator push below the recent trough of 40.0, which will most likely be broken if prices break below trendline from here.
Daily Chart shows price trading within a flat channel. Looking from here, a test of 108.0 may be possible but may not necessarily negate the bearish pressure which aims to hit 103.0 or at a minimum 104-104.5 which is needed to keep the structure of the consolidation zone. Failure to hit the aforementioned levels would suggest that bullish pressure is strong, and hence the uptrend seen in 2013 will come into focus again, with bullish target of 112 in sight and potentially higher to extend 2013 bull trend.
However, Stochastic continue to favor downsides, with readings threatening to break clear of the the previous 2 troughs and provide stronger bearish conviction towards Channel Bottom. Furthermore, there isn’t any strong fundamental reasons why Oil should be pushing higher given slowdown in your industrialized emerging markets, with first world industrial nations not faring much better either. Today’s inventory data from American Petroleum Institute may give us further insights on demand of crude oil. It is possible that a lower implied demand (e.g. higher inventory count) may be the kick needed to send bears on their way. However, if price actually continue to stay afloat despite a lower implied demand, with European and US stocks trading higher then, we may need to seriously consider that current risk appetite may be able to be irrational long enough for a 108 test to happen.
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