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Crude Oil: Do or Die


Crude Oil isn't going down without a fight.


Were last week's gains the end of a bounce, or the start of a rally?

Crude Oil isn't going down without a fight. That doesn't mean it's not going down.

The bounce back to April's high produced another downleg. And the downleg produced yet another bounce. Neither of the two drops was a surprise. Minyans can reference my past two articles that made the case(s) for expecting the selling (here and here). But the bigger picture has since changed, and rather than correct the prior rally, Crude Oil may be forming a Double Top.

Before getting carried away with the mainstream meaning for "Double Top," it should be noted that the pattern can break in either direction. The burden of proof is on bulls to show the market will break higher. Currently, most evidence points down.

The most persuasive evidence that buyers haven't regained control is also the evidence that a larger downleg began Thursday morning. After gapping down last Monday, Crude Oil rallied into Thursday morning's gap up. The open peaked upon testing the 73.65 area (basis June), which is a 61.8% retracement of the downleg into April's end. While that is consistent with a Double Top, it isn't proof. The proof is that Friday's drop ended the day under 72.65, which is the same pattern's 38.2% retracement level.

The proof is substantial, but it isn't yet damning. That would require a close under 70.75. And at this stage of the pattern, another drop under 70.75 should be within the context of obvious selling. The gap back to last Monday's open at 69.00 needs to be filled regardless of the pattern's eventual resolution, but it shouldn't provide much more than momentary support if a sustainable downleg is underway.

A recovery above Thursday's highs would paint a different picture, altogether. Same Double Top, but a different resolution. Picture the past month's Gold market price action. Now picture it on steroids. Until then, the path of least resistance is a break under support.

No positions in stocks mentioned.
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