Last week's price action supports two different narratives for where we can expect oil is headed.
Bull: The first says oil is consolidating and building a base from which to bounce higher. Since 11/13, oil has closed 3 times with a 40 handle, yet failed to close below 40.46, the 76.4% fib retracement from Aug's low to high, and bounced both times it dipped into the 39 level. A move off this base would likely run into resistance at the 50% retracement level at 43.50ish.
Bear: The alternative story says oil is grinding out a test of support at the 40 level prior to making a clean break lower on its way to re-test Aug's lows. Over the same time period, we saw what looked like a technical bounce from oversold levels reverse lower and test sub 40 twice. Despite the bounces higher off the 39 handle, and the clear bear trend breach on the hourly chart:
Friday's NYMEX close saw a strong reversal back down into the middle of the recent range.
I expect to see oil bounce between 42 and 40 before it resumes its descent.
Bull: The first says oil is consolidating and building a base from which to bounce higher. Since 11/13, oil has closed 3 times with a 40 handle, yet failed to close below 40.46, the 76.4% fib retracement from Aug's low to high, and bounced both times it dipped into the 39 level. A move off this base would likely run into resistance at the 50% retracement level at 43.50ish.
Bear: The alternative story says oil is grinding out a test of support at the 40 level prior to making a clean break lower on its way to re-test Aug's lows. Over the same time period, we saw what looked like a technical bounce from oversold levels reverse lower and test sub 40 twice. Despite the bounces higher off the 39 handle, and the clear bear trend breach on the hourly chart:
I expect to see oil bounce between 42 and 40 before it resumes its descent.