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Oil Q1 2022 Technical Forecast: Bullish Fatigue and Potential Bearish Reversal


A Case for the Bears: Bullish Exhaustion and Potential Lengthy Time period Reversal

Within the absence of a sizeable bullish catalyst, it will appear that the present long run trendline will quickly come below risk. This wouldn’t essentially be because of a robust bearish bias, however fairly due to a slowing fee of worth appreciation beforehand skilled as the worldwide financial system got here out of lockdown and worldwide journey resumed.

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

Indicators of a bullish continuation look like dropping momentum as we witnessed a fairly aggressive drop after the failed try to succeed in the 86.67/87 degree – a degree of historic significance because it usually served as help/resistance the place breaks above or beneath usually 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 (Month-to-month) Highlighting Main Help/Resistance Degree

Brent Crude Oil Monthly

Chart ready by Richard Snow, IG

Retracements in the course of the early levels of the prevailing bull run have been fairly small earlier than frantically persevering with larger. That is usually seen in robust trending markets, whereas extra not too long ago, retracements have turn out to be sharper and extra pronounced – signaling potential fatigue.

Potential ‘Head and Shoulders’ Sample Threatens Present Bull Run

The weekly chart helps to visualise a creating (however not confirmed) long-term reversal sample referred to as a ‘head and shoulders’ formation. Ought to costs transfer sideways we may even see considerably of a posh proper shoulder as worth motion oscillates up and down. A transfer beneath the trendline adopted by a retest could set the scene for a transfer in the direction of $70. The slanted neckline with a worth of round $66, presents a vital determination 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 Potential H&S Formation

Trendline Crude Oil Weekly Q4 2021

Chart ready by Richard Snow, IG

A Case for the Bulls: Partial Restoration from Preliminary 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.

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

DailyFX gives foreign exchange information and technical evaluation on the tendencies that affect the worldwide foreign money markets.

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