CL futures suffer worst day in two years
Crude oil markets experienced their steepest single-day decline in nearly two years on Monday, with WTI crude plunging over 6% to settle at $67.38 per barrel. The sharp selloff came as traders unwound risk premiums built up in anticipation of potential disruptions to Iranian oil facilities, which were ultimately spared in Israel’s measured military response over the weekend.
The market’s decisive reaction to Israel’s decision to avoid targeting oil infrastructure marks a pivotal moment for energy traders, who had spent weeks pricing in worst-case scenarios of direct conflict between the two nations. While geopolitical tensions remain elevated, with Iran maintaining its right to respond, the immediate threat to global oil supply chains has significantly diminished, setting the stage for technical factors and fundamental supply-demand dynamics to reassert their influence on price action.
Are technicals still bullish?
The main feature on the chart is still the support zone which we have been covering for many months now. The support zone extends back from March of 2023, and each time the price touches this zone, the bulls have been strong enough to push prices back higher from there. Once the price pushes back out of this zone and goes through a small relief rally, the highs are low each time, which is telling us that we likely won’t see a push above $95 unless we see a huge development in the Middle East or worldwide.
What this technical analysis attempts to achieve is the probability of a bounce once more out of this support zone and a potential target. The risk reward is decent with a relatively high chance of success. But lets look at the chart in more detail.
Key patterns on the chart
Descending Trendline Resistance:
- A long-term descending trendline from 2022 peaks remains intact, capping any significant rallies. This trendline aligns around the $75-$76 level, forming a confluence with the target marked on the chart.
- The market will need to decisively break above this trendline to signal a medium-term trend reversal. Until then, any rally towards this level might face resistance.
Potential Double Bottom Pattern:
- If the price holds at this support level and reverses, it could form a double bottom pattern with a neckline near the $75-$76 resistance zone. A breakout above this would be a bullish signal, suggesting a possible trend reversal.
High-Probability Trade Setups
1. Long Setup Near Support (Current Price Action Strategy)
- Entry: Look for bullish candlestick patterns (e.g., hammer or engulfing) around the $66-$68 support zone.
- Target: Initial target around the $75-$76 area, near the descending trendline resistance.
- Stop-Loss: A conservative stop below $65, allowing room for volatility while protecting against a breakdown.
- Probability: High, given the historical strength of this support zone, particularly if buying is triggered by geopolitical supply concerns.
2. Breakout Trade Above Descending Trendline (Medium-Term Setup)
- Entry: Wait for a clear daily close above $76, ideally with higher volume to confirm strength.
- Target: $80-$82, with further extensions possible if oil prices rally on geopolitical fears or demand shocks.
- Stop-Loss: Below the descending trendline post-breakout to mitigate false breakouts.
- Probability: Moderate, as this setup depends on a trendline breakout, which may require strong catalysts or shifts in market sentiment.
Overall Sentiment and Summary
- Short Term (1-4 weeks): Bullish bias as long as the price respects the $66-$68 support zone. Given the strong historical support and current geopolitical backdrop, a bounce from this level is likely, with a target around $75.
- Medium Term (1-3 months): Neutral to bullish, contingent on a breakout above the descending trendline and the $75-$76 zone. A successful break could open the path to $80 and beyond, but failure here could bring price back to retest the support zone.
- Long Term (3+ months): Neutral to bearish unless a decisive breakout occurs. The long-term downtrend is still in place, and sustained bullish momentum would require a break above the trendline.
In summary, the high-probability trade here is a long position near the $66-$68 support zone with a target around $75-$76. If price action and volume confirm strength, this could provide an excellent risk-reward entry for both short-term gains and a potential medium-term breakout.
