Introduction
Crude Oil futures have declined into a year-long support zone, which we will analyze below. There are a few fundamentals that have led to this drop, including OPEC news and weak economic data from China. For now, we will focus on the technical analysis to see if we can find any clues on the next move for CL futures.
Technical Analysis
Support Zone:
- The chart shows the year-long, well-defined support zone between approximately $70 to $72, highlighted in green. The price has recently touched this zone again, which has historically acted as a strong demand area. We should take note of this area because we could likely see an influx of buying interest regardless of the fundamental picture.
Resistance Line:
- There is a descending trendline connecting the highs from late 2023 to 2024. This trendline has consistently acted as resistance, preventing the price from breaking higher and forming a giant descending trianlge formation. Traders should watch the low of this support zone, as a break below it would signal a bearish trend breakdown.
Possible Trade Opportunities:
- A potential high-probability long trade setup would be to enter a long position if the price shows signs of stabilization or reversal in this zone, with a stop loss placed just below the lower boundary of the support zone (around $70). The first target could be the 50-day SMA near $78, with the second target being the descending trendline resistance around $80.
- On the flip side, if the price breaks below the $70 support level with strong volume, it would indicate a significant bearish breakdown. This could lead to a sharp decline as the next major support level would be much lower.
- In this scenario, a short trade could be considered if the price breaks and closes below the $70 level, with a stop loss just above the support zone and a target in the mid-$60s.
Summary and Trade Setup:
- Short-Term View:
- The current price action suggests a potential bounce from the $70-$72 support zone. The RSI is close to oversold, increasing the likelihood of a bounce.
- Medium-Term View:
- The trend remains bearish as long as the price stays below the descending trendline and the key moving averages. However, any bounce could provide a good opportunity for a short-term long trade up to the moving averages or the trendline resistance.
- Long-Term View:
- As long as the descending trendline remains intact, the long-term view remains cautious. A break above the trendline and moving averages would be required to shift the long-term view to bullish.
Trader Psychology
Remember, psychology is very important in trading. Some say it makes up to 90% of the traders ability to profit in the long run. This comes with over-trading and impulsive trading. If you have a problem with these two aspects, we have linked an excellent video below that could help!
