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Crude Oil Third Leg Down?

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Market Overview: Crude Oil Futures

The Crude oil futures traded lower and traders are wondering if it is forming a third leg down with the first two legs being Sept 26 and Dec 9. The bulls want a reversal higher from a double bottom with the December low. Crude Oil could be forming a trending trading range lower. 

Crude oil futures

The Weekly crude oil chart

Crude Oil Weekly: 2nd Leg Retest Low or third leg down?
  • This week’s candlestick on the weekly Crude Oil chart was an outside bear bar closing near the low.
  • Last week, we said that odds slightly favor Crude Oil to trade at least a little higher towards the 20-week exponential moving average and the bear trend line which are resistances above.
  • The bears got a reversal lower from a double top bear flag (October 10 and November 7) breaking below the September low in December. However, they failed to get follow-through selling.
  • Bears want another leg down breaking below the December low, completing the wedge pattern (the first two legs being Sept 26 and Dec 9).
  • They need to create follow-through selling next week to increase the odds of a breakout below the December low.
  • The bears want a strong breakout and a measured move down using the height of the September to November trading range which will take them to around $56.
  • The bulls want a failed breakout below the September low and the bull trend line. 
  • However, the recent pullback (bounce) stalled just under the 20-week exponential moving average.
  • They hope that this week was simply a deep pullback and want another leg higher to retest December 27 high from a higher low major trend reversal.
  • They need to create consecutive bull bars closing near their highs breaking far above the 20-week exponential moving average and the bear trend line to convince traders of a reversal higher.
  • Since this week was a big outside bear bar closing near the low, it is a good sell signal bar for next week.
  • Odds slightly favor Crude Oil to trade at least a little lower.
  • Traders will see if the bears can create a follow-through bear bar or if next week trades lower first but reversed to close with a bull body.
  • The last 7 candlesticks are overlapping sideways. That means Crude Oil is in a small trading range. 
  • Poor follow-through and reversals are more likely within a trading range.
  • Traders will BLSH (Buy Low, Sell High) until there is a breakout from either direction from this small trading range.
  • Crude Oil could be forming a trending trading range.

The Daily crude oil chart

Crude Oil Daily: Retest Low, 3rd Leg Down or DB MTR?
  • Crude Oil closed as an outside bear bar on Tuesday with follow-through selling. Thursday and Friday were weak pullbacks.
  • The bears got a reversal lower from a double top bear flag (Dec 1 and Dec 27) and a small double top (Dec 27 and Jan 3).
  • They see Thursday and Friday simply as weak pullbacks and want another sideways to down leg retesting December low.
  • They want a breakout below the December low forming the wedge pattern with the first two legs being September 26 and December 9.
  • The bears hope to get a measured move down to around $56 using the height of the September to November trading range.
  • The bulls want a failed breakout below the September – November trading range and the major bull trend line.
  • They want a reversal higher from a wedge bottom (July 14, Sept 26 and Dec 9) and a higher low major trend reversal.
  • They see the move down this week simply as a retest of the December low.
  • If Crude Oil trades lower next week, they want a reversal higher from a double bottom with December 9 low.
  • The bulls will need to create consecutive bull bars closing near their highs, trading far above the bear trend line and the 20-day exponential moving average, to increase the odds of higher prices.
  • Crude Oil formed another small trading range in the last 7 weeks. It could be forming a trending trading range.
  • Since the pullbacks on Thursday and Friday were weak as compared to the move down from January 3, odds slightly favor Crude oil to trade at least a little lower.
  • Traders will see if the bears can create a strong retest of the December 9 low followed by a breakout, or if next week trades lower first but stalls around the December 9 low and reverses higher.

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