Does crude’s recent slip point to an impending reversal?

Brent has finally broken out of a multi-month consolidation period. With a bearish wedge pattern set against a long-term uptrend, which will win?

IG Analyst

Publication date : 2017-03-17T16:33:58+0000

Source: Bloomberg

Crude prices have seen an interesting fortnight, finally breaking out of a three-month range, with US inventories first rising then falling, while the OPEC report showed a surprise rise in Saudi production. The picture is muddied by this mixed bag of factors, providing traders with a very fluid and unpredictable environment. However, charts help us look past this jumble of conflicting announcements and so this article will focus on what the charts tell us about the coming days, weeks and months for crude prices.

Long-term

Looking at the weekly chart, we are clearly in an uptrend considering the creation of higher highs and higher lows since the January 2016 low. That being said, there are signs of weakness in this picture. Firstly, we have seen the price trading within a rising wedge pattern, which is bearish by nature. The price has subsequently dropped through trendline support, with this week’s upside largely coming back into that trendline as potential resistance.

Interestingly, we have utilised the 50-week simple moving average (SMA) as support this week, which actually provided absolute low point for the past swing low, back in mid-November. Given that we have broken lower from what was already a bearish formation, this chart looks as though we could see the undoing of crude prices, with a break back below $44.00 the key to signaling the end of this year-long uptrend.

Brent weekly chart

Short-term

The four-hour chart highlights the fact we are forming a potential bottoming pattern, off the back of a significant sell-off. The key to this coming to fruition would be a break and an hourly close above $53.08. Should that occur, we would be looking towards $53.83 as the next key resistance level to watch.

Brent four-hourly chart

All in all, the key here is that we have begun to see tentative signs of weakness for crude, with a break through long-term trendline support. However, with a long-term uptrend still in play, which will win out - the long- or short-term view?

Does crude’s recent slip point to an impending reversal?

Long-term

Brent weekly chart

Short-term

Brent four-hourly chart

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