Oil Prices Slammed, WTI Tests Through Trendline Support

WTI Crude Oil Talking Points:

• It’s been a brutal week for crude oil, and a brutal month as prices are down by 19.57% from the October 20^th high.
• WTI came a dime away from the $80 big figure on Tuesday and then a fast turn-around showed, building an evening star formation on the daily chart that’s led to continuation today. The big question now is whether sellers go for continuation into the end of the week or whether we see longer-term support hold around a bullish trendline.
• I’ll be discussing these themes in-depth in the weekly webinar on Tuesday at 1PM ET. It’s free for all to register: Click here to register.

It started just about a week after the September Fed meeting.

At the time oil prices were surging and making a fast run up to the $95 level; there was a chorus of calls for $100 oil rushing back to the headlines. But it was the first week of October when matters really began to shift as an aggressive sell-off showed up and threatened to unsettle the trend.

The late-stage bulls made a re-entrance and controlled the trend for about two weeks, and then we saw one of those episodes where resistance started to play out without even having to come into the equation. I’m speaking of the psychological level at the $90 handle, and the high on October 20^th was a mere 2 cents shy of that big figure.

But the fact that $90 didn’t trade mattered little as sellers went on the attack and have pretty much been in-control of the trend ever since. WTI has lost as much as -19.57% in less than a month and that sell-off has driven down to a fresh three-month low today.

WTI Crude Oil Daily Price Chart (indicative)

Taking a step back to the weekly chart highlights a key spot of support around 64.15, which is the 38.2% Fibonacci retracement of a longer-term major move but, perhaps more important than that – this is what helped to hold the lows earlier this year. This price caught support inflections in both March and May – and to date, there hasn’t been a closed monthly candle through that price since the January, 2022 breakout.

There’s also a trendline projection that comes into the picture, and this becomes an item of importance for tomorrow to see if bulls will defend the level or if bears will be able to hold the move. If they can push through for a weekly bar closing below that trendline, the prospect of a trip back down to the $65 area could start to look more attractive.

The connection points between this trendline are the April 2020 and May 2023 lows; and the follow-through action in June held above that trendline. If this weekly bar closes below it, that would be the first such instance and this would further highlight shifting mood in oil.

WTI Crude Oil Weekly Price Chart

Chart prepared by James Stanley; data derived from Tradingview

From the daily chart below, we can where there hasn’t even been a daily close below $64.15 yet. But the pace of the recent sell-off also becomes evident and sellers have not been shy. This breakdown continues a run following a failed attempt on Tuesday to take out the $80 handle (another one of those resistance levels that proved resistant without even having to trade).

That led into an evening star formation which completed yesterday and there’s been continuation so far today. So given trends and the shift that’s shown this week, sellers still retain control – but if they fail to hold the weekly bar below the trendline, which projects to around 74.31 for tomorrow – that picture can begin to shift, opening the door for swing potential after a violent two-month run.

Above 74.31 is another of those ‘almost’ psychological levels with 74.93, followed by 76.72 and then 77.50. Above that are 78.77 and then the 79.90 level.

For support, there’s a prior swing-high-turned-support at 71.52 and that’s followed by the $70 psychological level. If that comes into play quickly, given the velocity with which the short-side move has priced in, there could be an opening door for contrarian setups, essentially looking for an oversold bounce.

WTI Crude Oil Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist