The price of crude oil has moved to new lows for the day, helped by news that the US is offering to release 40M of inventory from the Strategic Petroleum Reserves (see post here). The news is bearish.
Technically, crude oil has covered a lot of ground in September. Futures climbed from a low near $85.75 to a high of $107.46 on September 15. That rally then gave way to a sharp move lower, with the price bottoming near $88.72 on September 22 and 23. Since then, trading has been choppy as buyers and sellers look for the next sustained move.
Buyers had their shot at the 200-hour MA
The sideways trading allowed the falling 200-hour moving average to catch up with the price. Yesterday, buyers pushed above that average for the first time since September 17. They could not sustain the break. Momentum faded near last week’s high, well before the $97.00–$98.48 swing resistance area, and crude fell into the close yesterday.
Today brought another test of the 200-hour moving average near $94.74. Sellers leaned against it, and the price rotated lower. Crude is now trading near $90.44, after reaching a session low of $90.06.
Reports of improving crude export volumes from major Middle Eastern producers have added to the pressure on oil as has the SPR release. Still, the chart gives traders the clearest levels for judging whether the selling has more room to run.
What would give buyers more control?
The 200-hour moving average near $94.74 is the first hurdle. Buyers tried to take control above it yesterday, but they could not keep the price there. A move back above the average—and, more importantly, an ability to stay above it—would disappoint sellers looking for another leg down.
That would put the $97.00–$98.48 swing area back in focus. Buyers would need to work through that area to strengthen the bullish case.
What are the downside targets?
With sellers defending the 200-hour moving average, the first key support is $88.72. That level held on September 22 and 23 and lines up with swing lows from earlier in the month. Traders have a clear question there: will buyers show up again, or will the price break below support and stay below it?
A sustained move below $88.72 would turn attention to the 50% retracement at $86.93, followed by the 100-day moving average near $86.55. A rising trendline also runs through that general area, adding to its importance. If those supports give way, the rising 200-day moving average near $81.74 becomes the next major target.
In the video above, I walk through those levels and explain what would shift the technical bias as crude oil approaches its September lows.
Key technical levels
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$98.48–$97.00: Swing resistance area
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$94.74: Falling 200-hour moving average
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$90.44: Current price
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$88.72: September swing lows
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$86.93: 50% retracement
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$86.55: 100-day moving average and rising trendline area
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$81.74: Rising 200-day moving average
What can traders learn from the price action?
For newer traders, the lesson is to watch what price does at a level, not just whether it touches it. Yesterday’s move above the 200-hour average gave buyers an opportunity; the failure to stay above it told a different story. The same test now applies at $88.72. A bounce would show buyers are still willing to defend support. A break that holds below it would give sellers more confidence.
This article was written by Greg Michalowski at investinglive.com.