At the start of a new month the fundamental news cycle begins afresh, and all eyes were on the ISM figures for the US which came in at a disappointing 52.1 against a forecast of 53 adding further weight to the generally perceived view the US economy is now slowing, with the rising interest rate cycle now at an end, and one of many markets to react to the release was crude oil.
Over the last two weeks, oil has fallen dramatically driven by both technical and fundamental factors, and closing on the weekly chart with two wide spread down candles on high volume, signalling the strength of bearish sentiment is now increasingly dominating the chart. From a technical perspective, it was the strong resistance in the $64.40 per barrel region and denoted with the red hatched line which capped further advances, a level tested several times and holding firm on each occasion. In addition, and immediately below is the volume point of control itself, and as the fulcrum of the chart is denoted with the yellow dashed line. This defines the area where price agreement has been met in the congestion phase, with volume building in this region as a result.
Bearish sentiment then took hold with the first candle breaking through potential support at $60 per barrel, with last week’s price action then taking out the lower level at $56 per barrel. As we can see on the chart, there is very light potential support now below, and in addition on the volume point of control histogram to the right of the chart, we are approaching lighter volume nodes. Both factors are likely to work in concert to propel oil lower, and once the commodity breaks through the psychological $50 per barrel, $47 per barrel becomes the next logical stopping point where a deeper region of potential support awaits as denoted with the heavy blue dashed line of the accumulation and distribution indicator. In other words, back to where we started at the beginning of the year!
In the short term we can expect to see some consolidation at the current level of $54 per barrel before bearish sentiment continues to drive oil lower in the medium term.
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading
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