Finally a Bounce Back Reversal for Crude Oil

Aug 28, 2015: 12:23 PM CST

Like stocks, Crude Oil is finally getting a strong bullish bounce.

However, unlike stocks, Crude Oil snapped a much longer and persistent downtrend in price.

Let’s update our Crude Oil charts and note new levels in play.

The 30-min intraday chart highlights the strength of the short-term downtrend – or ongoing collapse – in price.

Price continued to carve a series of lower lows and lower highs in a falling EMA environment complete with higher volume during most of the sell-swings lower.

One of the core principles of technical analysis (charting) is that trends, once established, have greater odds of continuing than of reversing.

Oil gives us a textbook lesson in why this principle is so important.

Retracement trades – like bear flags – become the easiest trade set-ups to take during trends like these.

However, even the strongest trend has to end eventually (unless a company goes bankrupt) and oil finally snapped its intense sell-swing lower.

Price spiked off the $38.00 per barrel level, eventually spiking to a new momentum high on August 25th (gap) from a small divergence.

Price then gapped yesterday above the falling advanced trendline and then above the larger trending into $40.00.

The result was a powerful short-squeeze of bullish impulsive price action all the way to the $45.00 level currently.

Let’s put this huge rally – and even larger short-term downtrend – in the context of the Daily Chart:

There are only two examples of similar “spike-reversal” rallies during the ongoing downtrend.

Note February 2015 for a three-day powerful rally and then compare that to March 2015 for a similar up-spike.

A Dead Cat Bounce took oil up toward the $65.00 level ahead of a July breakdown and collapse toward $40.00.

Once again, a lengthy daily divergence preceded the current spike-reversal on higher bullish (buy) volume.

The upside daily target – for now – is the falling 50 day EMA and upper Bollinger Band near $47.50.

If oil continues higher, look for the $50.00 level to be a key bull-bear battle target.

For now, note the persistent downtrend (a lesson in why we do not fight them) and the power-spikes that occurred at inflection (price) lows.

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Corey Rosenbloom, CMT
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1 Comment

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