A Test for Oil

It is just a week ahead of Thanksgiving and here in my town the kids are off from school all next week. That means this week is full of tests. Students are not the only ones going through a test this week though. Markets are doing it too. The word ‘test’ for markets has a different meaning though. It is code for a move lower.

Stock markets are digging in, as we have seen during every options expiration week lately. But another market is undergoing a key test. Crude Oil is starting to pullback. And as it does so it is approaching a couple of important price levels. The chart below offers the evidence.

There is a lot going on in this chart but just a couple of things to focus on. The first is how Crude Oil broke above falling trend resistance in September that had held since February. That confirmed an uptrend. Note that the price has been above its 20 day SMA since then and is now extended from it. The second is the break above the consolidation range that was in place from December until February that occurred at the start of the month. Finally there is now rising trend support since the September low.

The test that is underway is whether or not Crude Oil prices hold above the early year consolidation range and the 20 day SMA. Often minor pullbacks in an uptrend retest key levels, and a touch followed by a reversal back higher would be healthy and reconfirm the uptrend. A break lower is cause for a bit of concern. Then the rising support comes into play.

A failure then to hold at that support level would suggest the short term move higher is done and there is more downside to come. Momentum suggests today may not be the end of downward pressure. The RSI is pulling back from an overbought condition while the MACD is just about to cross down. Keep an eye on this series of tests.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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