Crude oil has been going through a long bottoming process. Just when you thought that it had found a bottom in August last year, it stalled for a couple of months and then dove further to a new low in February. As professionals were looking for under $20/barrel, oil staged a rally. But that fell short in June as it ran into the October 2015 bounce-high level. Another pullback to a higher-low gave promise and it has since reversed to June's high.
So what's next?
There are 3 areas in the chart below to watch as clues to where crude oil is heading. The first is the 200-day SMA. Notice that the price had been below that 200-day SMA as it fell. It acted as resistance in June 2015, October 2015 and March 2016. But then in April 2016, the price moved over that 200-day SMA -- a bullish turn. In August it fell back to test that 200-day mark as support and it held, reversing higher. Staying over the 200-day SMA is important to any upside price action continuing.
The second is the slightly rising trend resistance. This line has held back advances in crude oil since July 2015. It is also the neckline of an inverse head-and-shoulders pattern -- a bottoming pattern. A push through this neckline would establish a price objective to at least $76. This would trigger in the short run a move over $53. It would take a move under $39.50 to negate this pattern.
Finally, the momentum indicators should be watched. these show short-term strength. The RSI at the top is in the bullish zone, but is falling. That's a sign that strong momentum is waning. The MACD at the bottom has crossed down, also a sign of slowing momentum. This happens a lot when price consolidation occurs, so it is not troublesome yet for oil. But a move under 40 by the RSI or to a negative number for the MACD would do much to negate the bull case for oil.
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