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Crude oil lost 1.81% during yesterday’s session, but is this the end of the buyers' fight for higher prices?

Technical Picture of Crude Oil

(Click on image to enlarge)

Let’s start today’s analysis with the quotes from the last article on crude oil:

(…) What’s next?

(…) the buyers gained another ally at the beginning of the day (the green gap, which serves now as the nearest support), which together with the buy signal (generated in the previous week by the Stochastic Oscillator) and increased volume that accompanied yesterday’s upswing suggests that they may want to re-test the bear's strength and determination to keep their valuable allies (the mentioned 38.2% Fibonacci retracement and all three bearish engulfing formations).

Nevertheless, the prolonged upper shadow of yesterday’s white candle suggests that the sellers won't give up without a fight. Therefore, in my opinion, it is worth monitoring the behavior of market participants very carefully in this key resistance zone, because the result of the battles played here will determine the next bigger move.

(…) What could happen if the bears win and take control of the trading floor?

In this case, we will likely see a reversal and a test of the strength of individual price gaps that serve as support for the bulls.

Looking at the daily chart, we see that the situation developed in tune with the above assumptions, and crude oil reversed and declined after hitting a fresh local top on Feb.14.

As you can see, although the commodity moved higher after the U.S. market open, the mentioned combination of resistances was strong enough to lure the bears and encourage them to fight for lower prices of black gold.

Thanks to their attack, the commodity slipped under the lower border of the gap formed a day earlier, which triggered even further deterioration and the test of the next green gap (just as expected). On the following session, the sellers dived even lower, which caused a test of the 38.2% Fibonacci retracement based on the entire Feb. upward move (marked on the chart below).

From today’s point of view, we see that this important support in combination with the mentioned gap, stopped the bears and started a rebound that invalidated the earlier short-lived breakdown under these bulls’ allies.

This positive development encouraged buyers to return to the trading floor, which translated into further improvement and a comeback above the previously broken 200-day moving average. Friday’s start of the session brought a test of the bulls’ determination to fight for higher prices, but the buyers did not give up and won another white candle with prolonged lower shadow (which confirmed their activity around intraday low of $76.69) and a daily closure above the mentioned moving average.

Thanks to this increase the commodity finished the previous week above very important resistance – the 38.2% Fibonacci retracement (based on the entire Sep.-Dec. downward move) marked on the weekly chart below.

(Click on image to enlarge)

From this perspective, we see that the bulls managed to do this for the first time since mid-Dec. low, which was a positive development. However, the huge bearish engulfing pattern created at the end of the previous month and its negative impact on the price (in combination with the bearish technical factors about which you could read several times on oilpriceforecast.com/oil-price-analysis) thwarted bullish plans for further growth.

When we take a closer look at yesterday’s price action (the daily chart below), we see that the mentioned resistances encouraged oil bears to show claws once again.

(Click on image to enlarge)

On the above chart, we see that yesterday’s session started with the red gap ($78.34-$78.46), which didn’t bode well for the price of black gold in the following hours. According to this assumption, we did not have to wait long for the effects of bear activity.

After a tiny increase and an unsuccessful attempt to close the gap, the commodity reversed and slipped under the opening price, triggering further declines. Thanks to this attack, light crude not only lost 1.81%, but also dropped and closed the day under the 200-day moving average.

The volume which accompanied yesterday’s move was quite big, but similar to what we saw on Friday, which in my opinion raises some concerns about whether the bears have already decided on another strong attack or are just considering pro-declining plans.

Therefore, another attempt to move higher and checking their opinion on this matter can’t be ruled out – especially when we factor in the proximity to Friday’s low and bulls’ determination in this area (the above-mentioned prolonged lower shadow).

Summing up, crude oil started the week with a red gap, which in combination with the bearish candlestick formations (seen from both a daily and weekly perspective) and the proximity to the red resistance zone suggests that further deterioration may be just around the corner.

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