Written by: Nadia Simmons
In our previous analysis, we wrote about crude oil’s strength. We emphasized how it was able to break above its declining resistance line and open the day with a price gap, despite numerous previous signals that had been pointing to the downside. We wrote that this strength is likely to take crude oil to about $30 or so, because that’s where the next strong resistance was.
However, we also wrote that based on the triangle-vertex-based reversal, we’re likely to see some kind of reversal on Thursday or Friday, and given the current momentum, it seems likely that it will be a top.
Well, we did see a top.
Crude oil broke below the very short-term rising support line and it verified the breakdown by topping in a quite profound manner. What makes it significant, is the shape of the daily candlestick – it’s a shooting star reversal. The breakdown, the reversal, and the likelihood of seeing a top yesterday or today doesn’t necessarily mean that the final top for this rally is in.
However, it does mean that the easy part of the rally is over. And consequently, we are taking money off the table right away, and we’re waiting for another great buying (or selling) opportunity to present itself. As of today, it seems that we might get a slower rally up to $30 and then we could have a shorting opportunity, or we might see a decline to the previously broken declining support line that’s currently at about $18. Depending on the way in which crude oil moves next, we’ll adjust our trading tactics accordingly.
Summing up, the easy part of the rally is over, so we’re taking profits off the table.