Crude Oil Breaks Down Overnight
Oil has been on a bullish run for some time and it had looked likely that it might continue to trend up to the 110 mark before we saw any breakdown. However, the last few days have shaken the trend and a strong US crude oil inventories reading has led to a massive sell off in the oil markets overnight.
For many investors, trending markets have to come to an end, and it's not entirely clear what direction might be taken next in the market.
As can be seen from the charts, oil has certainly taken two successive days of sharp dives. This has been on the back of the Ukraine crisis, showing signs of slowing down – which in turn means that oil might not be sanctioned in Russia. The second being, as I have previously mentioned, oil inventories came in at 1429K, well above the forecast of 1317K, previous 68K.
What is very clear is the breakdown of the very solid bullish trend line that has been in play recently. Numerous times, it had been tested and even yesterday it managed to hold, until breaking down completely overnight. While the drop through has been heavy, it’s likely we will see pullbacks in the short term as traders look to take profits after the recent two days of declines.
In the medium term, it's likely we will see further drops as oil tends to move in solid trend lines and we can see on the RSI that buying pressure has abated heavily. With this information, it's likely we will see further pressure pushing on the downside of oil till the next action level at the 38.2 fib level. This will likely act as a support level for oil in the coming month, as it slips lower.
With the short term price action set to pull back slightly, followed by a lengthy trip downwards most likely, I am certainly bearish on oil. Additionally, I believe that oil inventories will stay strong in the near term as the weather slacks off and starts to warm up in the USA. Despite this, fundamental threats are still there with Ukraine and the Russian invasion of Crimea. However, proper risk management should be able to handle this. If you’re an oil trader, now would certainly be a good time to start looking for new key trend lines to form and how to take advantage of it. I personally am looking at bearish trend lines forming and opportunities that may arise in the market place.