Brent – Double Bottom Forms as Inventories Fall

Brent crude has been under intense pressure recently and continues to trade in the descending channel that it briefly broke above last month.

It found some support yesterday from the middle of March lows around $52 but was not necessarily showing any signs of reversing the trend, despite a small rally later on in the session.

Crude oil inventories today provided that catalyst, with a drawdown of 4.203 million barrels easily exceeding expectations of 0.333 million.

Brent rallied more than a dollar off the back of the data and now trades back near yesterday’s highs. The result is a double bottom with the neckline around $53.86.

It should be noted that in cases like this, the double bottom can be subjective. Some will opt for the straight line from the previous high, as above, while others will identify it using the slanted line, as per the black line on the chart. This would give a neckline around $54.10.

If we see a break, and preferably a close, above the neckline, we could see a decent move to the upside. Based on the size of the double bottom, we get a price projection of $1.50 to around $55.36. Of course, this is only a rough projection and based on past moves, so there’s no guarantee it will happen on this occasion. Using the black line as the neckline, the price projection would be around $55.92.

It’s always better when the projection level coincides with other notable resistance levels and in this case, it falls near the 55-period simple moving average on the 4-hour chart and 233-day SMA.

A couple of things worth noting here:

1) $54.90 has been a support level on a couple of occasions in the last few weeks and may provide some resistance on the way back up;
2) A daily close above $53.80 would create a morning star formation, a bullish triple candlestick formation.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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