Wednesday, September 3, 2014

WTI: Evening star shows sun is setting on last week’s bounce

By Matt Weller

One of our persistent biases last week was that the U.S. dollar rally was due for a breather after strengthening dramatically over the previous few weeks.

That theme played out nicely in some markets (USD/JPY, USD/CAD, AUD/USD, gold (COMEX:GCV14) and oil), but failed to develop in other markets (EUR/USD and USD/CHF). Regardless, the scene may now be set for another leg higher in the greenback across the board, assuming this week’s high-impact US data cooperates.

One of the most actionable setups at this point could be in WTI (NYMEX:CLV14), which is in freefall today after bouncing back to 96.00 last week. As we noted two weeks ago, a multi-month Head-and-Shoulders pattern suggests that the commodity could still see further downside toward 90.00 over the medium-term. More immediately, prices are putting the finishing touches on a clear Evening Star candlestick pattern; this relatively rare 3-candle reversal pattern shows a shift from buying to selling pressure and is often seen at near-term tops in the market.

Beyond the price itself, the other technical indicators are also painting a bearish picture. Last week’s bounce stalled out directly at the shallow 23.6% Fibonacci retracement and the downward-sloping 20-day MA, which has consistently put a cap on oil over the last two months. Meanwhile, the MACD remains well below the “0” level, showing generally bearish momentum, while the RSI has bounced out of oversold territory, potentially opening the door for another leg lower from here.

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