Bullish Fatigue and Potential Bearish Reversal

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A Case for the Bears: Bullish Exhaustion and Potential Long Term Reversal

In the absence of a sizeable bullish catalyst, it could appear that the present long run trendline will quickly come below menace. This wouldn’t essentially be because of a robust bearish bias, however relatively due to a slowing charge of value appreciation beforehand skilled as the worldwide economic system got here out of lockdown and worldwide journey resumed.

At this charge, a break beneath the long run trendline might merely be attributed to the passing of time as value motion consolidates and wouldn’t essentially quantity to a sudden bearish bias. That being stated, a protracted interval of consolidation might be symptomatic of a fatigued market which can be due for retracement and doubtlessly even a bearish reversal, topic to affirmation.

Signs of a bullish continuation look like shedding momentum as we witnessed a relatively aggressive drop after the failed try to succeed in the 86.67/87 degree – a degree of historic significance because it typically served as help/resistance the place breaks above or beneath typically resulted in an prolonged transfer. For reference, see the month-to-month chart beneath highlighting main inflection factors in blue:  

Chart 1: Brent Crude Oil (Monthly) Highlighting Major Support/Resistance Level

Chart ready by Richard Snow, IG

Retracements throughout the early phases of the present bull run have been relatively small earlier than frantically persevering with greater. This is usually seen in robust trending markets, whereas extra not too long ago, retracements have develop into sharper and extra pronounced – signaling potential fatigue.

Potential ‘Head and Shoulders’ Pattern Threatens Current Bull Run

The weekly chart helps to visualise a growing (however not confirmed) long-term reversal sample often called a ‘head and shoulders’ formation. Should costs transfer sideways we might even see considerably of a posh proper shoulder as value motion oscillates up and down. A transfer beneath the trendline adopted by a retest might set the scene for a transfer in direction of $70. The slanted neckline with a value of round $66, presents a vital choice level as a breakdown of this degree with continued momentum strengthens a long-term bearish reversal buying and selling bias.

Chart 2: Crude Oil (Weekly) Highlighting Possible H&S Formation

Trendline Crude Oil Weekly Q4 2021

Chart ready by Richard Snow, IG

A Case for the Bulls: Partial Recovery from Initial Omicron Scare Brent crude oil costs didn’t retest the 86.67/87 space as bearish momentum gained power on the again of the Biden’s coordinated SPR launch adopted by the outbreak of Omicron. Since then, there was a substantial restoration as costs initially broke beneath the long-term trendline help however virtually instantly recovered.

Current ranges (as of 15 December 2021) have solely partially recovered current losses and crude trades simply above the long run trendline so if there’s to be some kind of bullish revival it must occur quickly. The first actual take a look at stays 77.50, then 80 earlier than any retest of the October excessive might be entertained. All of those ranges appear relatively distant however shouldn’t be disregarded.

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