October was a brutal month not only for the U.S. IT-Companies. Crude oil prices also had significant and important shifts.
After renewing the 4-year highs, Brent Oil Futures has lost more than 16% to date. By the beginning of October, its rally had been the strongest in more than 6 years, according to the RSI index. However, as in 2012, such a sharp growth was a harbinger of a serious twist of fate.
Losing for the previous 6 trading sessions in a row, the Brent price is now quickly approaching the important mark of $70 dollars per barrel, the dynamics near which may be the key for the next few months.
The current trend of oil growth was formed in the middle of last year and since then we have seen only small corrections in the growth trend. But at the end of October Brent broke the support line and “dropped out” from the current trend. The final approval of the scrapping trend may come from a decline below the preceding lows near $70.
It must be said that WTI has already descended to $63, which is below its previous local lows at about $64, having established itself a reversal to a decline.
It is also worth to mention that the round mark of $70 is an important psychological moment. The fall below is able to attract additional attention and cause a rise in market pressure.
Already now Brent oil is below 200-day average, which is considered an indicator of the average annual trend. Falling below this line very often makes trend-followers reconsider their attitude to the instrument.
Moreover, within a reach of the mark $70 is situated another important level. $69.30 is an informal trait separating Brent from the bear market. Unofficially, the fall of more than 20% of the peak is considered a signal of the bear market beginning for the instrument and heralds a further loss, which often takes another 20%.
Fundamentally, the oil is being pressed by the fears of a new overproduction episode. However, the importance of technical analysis and the important psychological mark in this case is difficult to overestimate.
However, an alternative scenario cannot be completely ruled out. If the oil manages to stay above $70 or gets support near current levels, it will become a very strong signal for growth. Moreover, the impulse indicators are indicating the oversold now. After 2014, it was a good signal for the rebound very often.
Alexander Kuptsikevich, the FxPro analyst
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