Crude Oil Prices Looking Unsettled: What’s Next?

There has been further weakness in the commodity sector this week and despite some late week bounces, I don’t think the decline is complete.

Crude Oil (WTI) fell right to a 61.8% fibonacci retracement of the August rally before bouncing Friday back above the $44/barrel level. The chart below shows Thursday’s close. WTI crude oil prices and Oil ETFS (NYSEARCA:USO) are in between a rock and a hard place in more than one way.

First, oil prices sit between strong chart resistance in the low 50’s and somewhat strong chart support in the high 30’s.

In addition, crude oil is between its flat 200-day moving average at 41 and its slightly falling 50-day moving average at 45.30. WTI is also between a rising trend line off the February lows and a declining trend line off the June highs.

Looking out a bit, it still appears that crude oil is tracing out a very large inverse head & shoulders formation. It’s also possible that crude could trace out a complex right shoulder with another dip into the high 30’s. To complete this large pattern, WTI needs a strong, sustained break above the neckline at 51.67. This may not be so easy. The 14-day RSI is below 50, a warning.

The daily MACD has gone bear cross, but remains in positive territory, and this is also a warning.

I continue to be worried about the COT report which shows a high degree of optimism by the not-so-smart-money large speculators and a high degree of pessimism from the smart money commercial hedgers. My overall opinion toward crude for the short- to intermediate-term is neutral to bearish.

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Thanks for reading.

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The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.