WTI oil touched a 7-month low of $42.91 on Tuesday. Prices have been showing persistent signs of weakness since falling from the February 21 high of $55 a barrel and have retreated into bear-market territory after a 20% drop from this peak.
Looking at the technical indicators, the short-term 50-day moving average crossed below the longer-term 200-day MA on May 16, giving a bearish signal. The 50-day MA is falling.
Momentum indicators are bearish and are showing increased risk to the downside. RSI is below 50 and MACD is below zero.
After touching $42.91, prices paused their decline, making this level a support level. It is close to the November 14 low and has also provided support several times in the past. Meanwhile, it is also the 61.8% Fibonacci retracement level of the upleg from $35.24 to $55.40 (April to December 2016 uptrend). Below this, the August 3 low at $40 comes into view as an important support level before reaching the April 5 low at $35.24.
To the upside, resistance is expected at $45.24, this week’s high and close to the 50% Fibonacci. The 38.2% Fibonacci level at $47.67 is another resistance. Surpassing this level would target the key $50 mark. Prices would have to rise above $50 in order to weaken the short-term bearish bias. This move would also bring the market above the 200-day MA average, giving it a more bullish bias.
The medium-term outlook is bearish and this is highlighted by the fact that the market has been carving out lower peaks and lower toughs since February. Looking at the bigger picture, as long as the market trades between $40 and $50, the bias is neutral.
