Two weeks up, two days unwound: Bearish crude oil setup

Crude oil is one of the few commodities that hasn’t participated in the broader rally this week, weighed down by a report on Thursday that Saudi Arabia will sacrifice higher prices to protect market share.

Even before the report dropped there were signals crude was staring at downside, with a key reversal on Wednesday setting the tone. The gains crude took weeks to achieve have been unwound in two sessions, suggesting it’s far easier to sell rallies that buy dips in this environment. That view is reinforced by the uptrend break in RSI (14), a bearish signal on momentum that looks like it’s about to be confirmed by MACD.

Thursday’s rout sent WTI through $67.65, a level that has acted as something of a pivot point for prices recently. Given its proximity, it creates a level to build bearish setups around.

You could sell around these levels, but my preference would be to wait to see whether the price can take out Thursdays low of $67 first. You could then set a tight stop above $67.65 for protection. On the downside, $64.10 would be an obvious target.

While the price and momentum signals are undeniably bearish, being close to quarter-end and with ample optimism out there about the global economy given China’s latest stimulus measures, I’m determined to let the near-term price action to tell me what to do. If it can’t break Thursdays lows, or reverses back above $67.65 and closes there, it would question the near-term bearish bias.

Good luck!
DS