The next bearish leg of Oil cycle appears to have started, with prices threatening to break the 103.0 support and invite fresh more bears to push towards sub 100.0 levels. Stochastic readings agrees, giving us a bearish cycle signal with both Stoch and Signal lines crossing below 80.0. The fundamentals of a decline is there as well – no more Syrian conflict, Iran nuclear crisis appear to have lessen somewhat, global economy continues to look tentative etc. Furthermore, prices were unnaturally pushed up higher by speculators during the peak of Syrian unrest, hence it is only reasonable that the sell-off is equally if not fiercer than the build up.
From a technical perspective, the ultimate bearish target would be around 80.0, with 85.0, 99.0 and 100.0 providing major support along the way. Failure to break 103.0 this week does not necessarily invalidates the overall bearish outlook, but it is possible that the major bearish breakthrough may be delayed especially if soft resistance of 105.0 is surpassed.
Short-term chart is less generous, with price action suggesting that a breach of 104.5 may be sufficient to bring prices up towards 105.0 and beyond. However, that being said, overall bearish pressure will not be invalidated unless price push beyond 109.0 one again. But this seems like a remote possibility given that Stochastic readings are currently deep within the Overbought region. Short-term momentum favors a retest of 104 which will drive prices towards 103.0 and potentially beyond if the aforementioned level is broken.
Today’s Department of Energy weekly Crude Inventory Stock data may provide additional bearish pressure if the numbers reflect a lower than expected implied demand. This is especially true when we consider that American Petroleum Institute data yesterday showed a mild inventory decline of only 54k barrels when analysts were expecting a drop of 1.5 million. Hence it is likely that DOE numbers will reflect the same miss. However, it should be noted that Crude Oil prices actually ended up trading higher towards the end of the US session even though overall risk appetite was low as seen via Stocks. The reason for the surprise rally is most likely due to the tremendous number of technical bulls buying Crude up when 103.0 was tested. Will this happen once more tonight? This is anybody guess, and hence traders should not automatically assume that 103.0 will just rollover easily even if DOE numbers turns out bearish. Should DOE numbers proved to be bullish but prices remained capped below 105.0 and preferably below 104.5, this will be an affirmation of the strong bearish underlying sentiment which gives us a better shot to break 103.0 in the near term.
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