Chart Adviser: WTI Crude Oil

By Dean Rogers, CMT

1/ Weekly Chart

2/ Daily Chart

3/ $0.50 Kase Bar Chart

4/ USO Table Comparison

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1/

Weekly Chart

WTI crude oil is on the verge of adopting a much more bearish outlook for the coming months after breaking lower out of a pennant pattern and a subsequent throwback that has held the pennant’s lower trend line so far. 

The weekly continuation chart broke lower out of a large pennant pattern on September 3 that began to form in early May 2023. The subsequent decline stalled at $65.27, which was in line with the 38 percent retracement of the rise from crude oil’s brief dip to the April 2020 swing low of $-40.32. This level at $65.3 has been resilient on the weekly chart since March of 2023. 

Courtesy of TradeStation

A weekly long-legged doji formed and was completed by a close above the midpoint of the week ended September 6. This bullish candlestick pattern and a weekly oversold Stochastic oscillator warned that a reversal was taking place and that a failed breakout of the pennant had occurred. 

However, the move up has held the lower trend line of the pennant and the pullback from the $72.49 swing high suggests that the move up from $65.27 is a throwback to challenge the pennant’s lower trend line. Throwbacks are common and typically prove to be a correction after breaking out of patterns such as this pennant. 

Should this prove to be the case, and prices settle below the $65.3 target, WTI crude oil would then be poised to challenge $63.6 and a highly confluent area of Fibonacci wave extensions around $60.0. A sustained close below $60.0 would then call for targets at $53.7, $49.9, and another highly confluent area around $43.5. 

2/

Daily Chart

It is still premature to definitively state that the move up from $65.27 is complete. However, evidence that this move is a corrective throwback is mounting. 

The $72.49 swing high held the lower trend line of the pennant, and the subsequent move down settled marginally below the 38 percent retracement of the rise from $65.27 (blue) on Wednesday. This implies that the decline from $72.49 is more than a simple correction of the move up from $65.27 and that a more significant test of support will take place during the next few days. 

Courtesy of TradeStation

Settling below the 62 percent retracement of the rise from $65.27 (blue) at $68.0 would strongly suggest that the move up from $65.27 is complete and that WTI crude oil’s downtrend will rechallenge $65.3 and likely lower in the coming weeks. 

Nonetheless, Wednesday’s close below the 38 percent retracement was nominal. This could prove to be a stalling point for the pullback from $72.49. Should prices rally again and close above the lower trend line of the pennant at $72.8, look for a test of the $73.7 smaller than (0.618) target of the wave up from $65.27 (dark red). This wave then connects to $76.5 and higher. 

3/

$0.50 Kase Bar Chart

The intra-day $0.50 Kase Bar chart shows that the connection to the key $68.0 target is made through $69.5 and $68.5. These are the smaller than (0.618) and equal to (1.00) targets of the wave down from $72.40 (light blue). The $65.9 level is also the equal to (1.00) target of the primary wave down from $72.49 (olive). Falling back below $69.5 will call for $68.5, which then connects to $67.6. Therefore, closing below $68.5 will clear the way for a test of $68.0. 

Courtesy of TradeStation

Nevertheless, because the $69.4 equal to (1.00) target of the primary wave down from $72.49 (olive) held there is a modest chance for another test of resistance. Closing above the 62 percent retracement of the decline from $72.49 (orange) at $71.2 would imply that the move down from $72.49 is complete and would clear the way for a test of the pennant’s lower trend line at $72.8 and then the $73.7 smaller than (0.618) target of the wave up from $65.27 (red). 

4/

USO Table Comparison

WTI’s trend down from the March 2022 swing high of $130.50 is still intact. Breaking lower out of the pennant that began in March of 2023 indicates that the downtrend should extend in the coming weeks and months. 

However, it is still unclear as to whether the move up from $65.27 is a corrective throwback or the early stage of a bullish reversal. 

Based on the mounting bearish evidence that has formed within the past few days it looks as though the move up from $65.27 will prove to be a corrective throwback that holds the lower trend line of the pennant around $72.8. 

Key support for the near-term is $68.0, a close below which will call for $67.0 and likely another test of $65.3. Settling below $65.3 will open the way for $63.6 and $60.0 within the next few weeks and possibly much lower in the coming months. 

Courtesy of TradeStation

That said, settling above $71.2 before falling much lower will call for the lower trend line at $72.8 to be challenged again. Settling above this would infer that a bullish reversal is underway. This would be confirmed by a close above $73.7, which will open the way for $76.5 and high. 

Equivalent targets and resistance levels for the USO ETF are also shown in the table above. 

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Originally posted 26th September 2024

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