On Friday I pointed out how crude oil reached our target in the 66.00 region. The bearish outlook materialized back on October 7th when oil was trading just above the 74.00 handle. You can read that post here.
The key takeaway from Friday’s commentary wasn’t that the market reached our target, but rather the idea that the selling pressure isn’t likely to end anytime soon. Of course, that does not mean we won’t see relief rallies along the way.
Let’s start with the monthly time frame. Tomorrow is the last day of October, so the massive bearish engulfing candle for the month is as good as finished at this point. And given that it developed at a multi-year swing high, it suggests there’s more pain ahead for crude oil.
Furthermore, the ascending channel I’ve highlighted several times of late has bearish implications. When a channel like this forms after a two-year rally it acts just like a rising wedge in that it hints that buyers are tiring.
Alright, so what’s the game plan?
As you can guess, I’m rather bearish on U.S. crude oil. A daily close (New York 5 pm EST) below 66.30 would open up downside targets. So far, we’ve seen a 4-hour close below it, but I’d prefer a daily close to help confirm the break.
The downside targets on my radar include 63.90 followed by 60.00. If sellers manage a daily close below 66.30, I have every reason to suspect oil is headed for the 60.00 handle over the coming days and weeks.
Alternatively, if we see oil take out this week’s (current) high at 67.97, there’s a good chance the market will revisit key resistance at 70.00. But as I mentioned above, it all hinges on how the market reacts to the 66.30 area this week.