Following a stellar bullish run, the WTI futures (NYMEX: CL) became the victim of profit-taking in last week’s closing session, followed by some disappointing data from China that triggered a larger selloff. With the price action at a crucial level of support, could this be a temporary correction or the start of a trend reversal?
On Monday, Chinese GDP rose from 4.5% to 6.3% year over year but missed the 7.3% consensus. Quarterly GDP edged lower from 2.2% to 0.8%, while retail sales slumped from the prior 12.7% to 3.1%, slightly missing the 3.2% forecast to the downside. As a result, the market got increasingly frustrated by the lack of stimulus in China, as fears are growing that the post-Covid boom is over. With demand concerns entering the picture, the supply side provided little support, as production from Libya resumed over the weekend after two of its oil field were shut down last week over protests.
Technical
On the 4H chart, an ascending channel has formed from the late June bottom, where the market retraced to the Fibonacci golden ratio at $77.30 per barrel (BLL) before meeting resistance that triggered the profit selling, which is now putting the channel support under pressure.
A sustainable breakdown at $74.65/BLL could signal a trend reversal, which could get confirmation from an additional leg below $73.92/BLL. In this case, the downside pressure could propel the bears toward lower support at $72.64/BLL and $70.96/BLL.
Conversely, if the channel support holds, a breakthrough at the daily pivot resistance of $75.94/BLL could signal a trend continuation within the channel, where the bulls could re-attempt a breakthrough at the Fibonacci golden ratio of $77.30/BLL. On the upside, higher resistance is established at $79.12/BLL and $80.08/BLL, the 78.6% Fibonacci retracement.
Summary
After recent developments sparked profit-taking among traders, the WTI futures now lie at crucial support. A breakdown at $74.65/BLL could signal an additional downside toward $73.92/BLL. However, if support at the channel holds, a continuation of the current trend is on the cards toward $75.94/BLL.
Sources: Koyfin, Tradingview, Reuters
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