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Oil Update: No Breakout So Far, but the Trend Remains in Place


Plus, what is the relationship between gold and oil in the near future?

Let's take a closer look at the weekly chart.

On the above chart, we see that the NYSEARCA Oil Index still remains above the medium-term support lines. Keep in mind that the strong support line (marked in black) stopped the decline in June, which resulted in a rally in the following weeks.

Although history didn't repeat itself in the recent week and the XOI didn't rally as it had previously done, the medium-term uptrend is not threatened currently, and the situation remains bullish.

Please note that we should still keep an eye on the aforementioned support line because it is also the lower border of the rising wedge. This is a bearish pattern, and if buyers fail, it will likely lead to a decline that may take the oil index at least to the lower medium-term support line (the red one).

Now let's turn to the daily chart.

From the short-term perspective, we clearly see that the recent increases have taken the XOI slightly above the 61.8% Fibonacci retracement level, based on the entire July-August decline. This quite strong resistance level in conjunction with the July 30 low (in daily closing prices) encouraged sellers to act and the oil index dropped below 1370 on Friday. In this way, a small breakout was invalidated.

At this point, it's worth noting that the XOI closed the previous week at the 50-day moving average, which still serves as support. If it holds, we may see a pullback to the Wednesday high. However, if it is broken the nearest support level will be the Tuesday low, and the next one will be based on the last Wednesday bottom and the 61.8% retracement level.

Please note that the next resistance level (above the Wednesday high) is the declining resistance line based on the May and the July highs (currently close to the 1,404 level). If it is broken, the buyers' next target will be the July peak, and then the May top.

Before we summarize, let's check the relationship between the WTI and the XOI in the short term. Despite the negative divergences at the beginning of the previous week, the second half looked pretty much the same in both cases and we saw declines.

Summing up, from the long and medium-term perspectives the outlook for oil stocks is bullish and the uptrend is not threatened at the moment. Taking into account the relationship between light crude and the oil stocks, we see that crude oil is still a step behind the oil index.

Speaking of relationships, let's take a closer look at the chart below and check the connection between crude oil and gold. Has it changed in the recent days?
No positions in stocks mentioned.
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