Understanding the Recent Volatility in Oil Prices: A Technical Perspective
26 May 2023
This week started great for oil, as the price had been climbing higher every day until Thursday. You may think that a one-day correction is nothing to be scared of, but the thing is that yesterday, sellers managed to wipe out all the gains from the first half of the week. Let’s see where it takes us in terms of the mid-term sentiment here.
For this analysis of oil, I will use the Brent oil chart. The latest bearish wave started on April 12 and lasted until May 4 when the bullish correction started. The correction is a typical one and wedge-shaped (red lines). On Wednesday, the price tested the upper line of the wedge, but additionally broke the 38,2% Fibonacci. That happened to be a false breakout (orange) and the price (or the penalty) for that was a heavy drop which stopped right on the lower line of the wedge.
Wedges are trend-continuation patterns, which means that in theory, they promote a breakout to the downside. The price closing a day below the lower red line would be a proper signal to sell. On the other hand, the price closing a day above the upper line would be a signal to buy, but the chances of that happening now are rather limited.