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The oil market has been exceptionally volatile over the last few weeks as financial markets go through a series of extreme price movements as traders and investor start to position and reposition into the monthly close, and the end of the fiscal quarter.
All the major asset classes and financial market sectors have been undergoing similar volatility alongside crude and brent oil this week. For example, the US dollar has been breaking higher furiously on the foreign exchange market against most major currencies, while the major indices in the United States have been fluctuating in and out of the red.
The VIX CBOE volatility index, a key measure of market volatility, spiked to its highest level in two-weeks yesterday, with a 24 reading. It should be noted that the current high for the year on the VIX is a touch over 37.
Crude oil has recently been smacked down from the $60.00 benchmark level and is now testing back towards the current monthly price low. At current prices crude oil is down by nearly $10.00 from its monthly high.
Fears over an ongoing container ship blockage in the Suez canal and falling global demand due to rising COVID-19 has significantly hurt the bullish case for oil. The oil market started to show cracks last weeks after appearing rock solid around yearly highs for a number of weeks.
The technicals surrounding crude oil are extremely negative at the moment, and even more so if bears take-out the monthly trading low over the coming days. A bearish price pattern is warning of another $10.00 price decline.
According to the ActiveTrader market sentiment tool some 78 percent of traders are bullish towards crude oil. Retail traders have once again been on the wrong side of the trading during the entire price drop.
If crowd sentiment remains at these fairly extreme levels, the bearish trend in crude oil is likely to continue at a rapid pace. Sentiment may need to neutralize in order for the recovery to be sustainable.
Crude Oil short-term Technical Analysis
The lower time frames currently show that crude oil is forming an extremely large, and complex, head and shoulders pattern. The pattern will be activated if crude oil falls below the $57.35 level..
According to the overall size of the bearish pattern crude oil could fall by as much as $10.00 if the $57.35 support level is breached. The $60.00 level is currently caping advances, while a break above this level could cause a rally towards the $63.00 level.
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Crude Oil medium-term Technical Analysis
The monthly time frame shows that crude oil might be heading back towards critical trendline support, around the $52.00 level.
Crude oil has not tested this key trendline since it burst through it last month. It makes sense that we may see bears testing this key trendline. It could indeed be a deciding moment, especially since the trendline is now denoting the bottom of a large triangle pattern.
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