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Island-hopping with Crude Oil's Bears


Suddenly that two week-old break isn't looking so false.


Remember Friday's open in Crude Oil two weeks ago today? A week of narrow ranging was suddenly resolved by a gap and spike down to new relative lows (highlighted green in the chart below).

But the selling ended almost immediately. And the balance of the session only ranged narrowly at the lows. The break had the potential to be proved false, and it was. The following Monday filled Friday's opening gap back to the prior consolidation's highs. Tuesday's open gapped up to new relative highs.

And then a funny thing happened. Tuesday's gap up was immediately retraced by Wednesday's gap down, forming an Island of Tuesday's price action. Despite their pessimism, gaps down tend to inhibit momentum from gaining force. This one was no exception, and the following Monday gapped up and extended higher above the Island. The session's highs - and the following two sessions' highs - repeatedly probed a month-old gap that had led to the recent highs.

But the gap held, and Thursday's open gapped down yet again, back under the prior week's Island. As if one Island weren't enough of an anomaly, now there are two recent instances of overly-optimistic price action. Anomalies don't cancel each other out, and these two retraced all of the recovery that had signaled a false break two weeks ago.

Suddenly that two week-old break isn't looking so false. It was required at the time, since the market had been chipping away at support. But there was no requirement to retrace this much of the recovery. There must be something more substantial in-play.

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