July crude oil futures are in the process of posting an inside move on the weekly chart. To non-chart watchers, it means the market failed to produce a higher-high or a lower-low when compared to the previous week's price action. To chart watchers, it may be an indication of investor indecision or impending volatility. It may also mean the market is in a transition that could be an indication that momentum is getting ready to shift to the downside.
The failure to make a higher-high didn't come as a surprise because for several weeks I've been telling the readers that the week-ending June 3 is a critical week for timing. Earlier in the year, the market rallied eight weeks before forming a top that led to a three week decline. With the market balancing time the week-ending June 3, we could see the start of a similar break.
While most traders watch price, time is the most important indicator. A rally that exceeds a previous rally in terms of time is a strong market so if the market pauses this week then resumes the uptrend next week then we can conclude the buying is getting stronger. However, if the market starts to take out previous lows then we have to expect the start of at least a three week break.
(Click to enlarge)
According to our weekly swing chart indictor, the main trend is up. The market is in no danger of turning the main trend to down and based on Thursday's price action, it isn't even in a position to post a bearish closing price reversal…
July crude oil futures are in the process of posting an inside move on the weekly chart. To non-chart watchers, it means the market failed to produce a higher-high or a lower-low when compared to the previous week's price action. To chart watchers, it may be an indication of investor indecision or impending volatility. It may also mean the market is in a transition that could be an indication that momentum is getting ready to shift to the downside.
The failure to make a higher-high didn't come as a surprise because for several weeks I've been telling the readers that the week-ending June 3 is a critical week for timing. Earlier in the year, the market rallied eight weeks before forming a top that led to a three week decline. With the market balancing time the week-ending June 3, we could see the start of a similar break.
While most traders watch price, time is the most important indicator. A rally that exceeds a previous rally in terms of time is a strong market so if the market pauses this week then resumes the uptrend next week then we can conclude the buying is getting stronger. However, if the market starts to take out previous lows then we have to expect the start of at least a three week break.
(Click to enlarge)
According to our weekly swing chart indictor, the main trend is up. The market is in no danger of turning the main trend to down and based on Thursday's price action, it isn't even in a position to post a bearish closing price reversal top signal. This means that we'll have to watch the price action and how traders react to a test of a major low.
The main range is $64.00 to $31.61. Its retracement zone is $47.81 to $51.63. The market has been testing this zone for three weeks. The interesting thing about a retracement zone is that it often acts as a transition area where long traders like to take profits and aggressive counter-trend traders like to initiate fresh short positions.
Over the last three weeks, we haven't seen much upside momentum, however, the downside momentum has also been weak. We did see lows the week-ending May 27 at $47.40 and this week at $47.75. This is close enough to the $47.81, 50% level to tell me that buyers are defending this price. It also tells me that this is the trigger point for the start of at least a three week break.
Although the inside move may be indicating investor indecision, traders may tip the direction they are favoring with the close on Friday, June 3. Currently, it is in a position to close lower for the week which may be an indication that investors are leaning towards the downside.
Since I don't want to get in the way of a rally and try to pick a top, it looks as if the market is going to encourage me to sell weakness if $47.81 is taking out with conviction. If big selling volume comes in then we could see the start of a three week break.
(Click to enlarge)
The first target is an uptrending angle at $46.50. This is followed by a swing chart target of $44.02 since the last three week correction was $6.19.
If a short-term range forms between $37.50 and $50.21 then its retracement zone at $43.53 to $42.11 will become the next major downside target.
The inability to sustain a break through $47.81 will indicate the presence of buyers. Taking out $50.21 will mean the same. In this case, trader reaction to potential resistance points at $51.00, $51.61 and $51.63 will be very critical to the near-term direction of the market.
Remember that testing these levels will mean that time is saying the market is strong. If buyers decide the same then they are going to aggressively attack the $51.00 to $51.63 zone in an effort to drive prices sharply higher.
If sellers decide to take over then watch for a closing price reversal top to form if they successfully defend the resistance area.
Summary
Price and time indicate that July crude oil is ripe for at least a three-week correction. However, since it looks like we've missed the opportunity to sell at a higher level unless you were an aggressive counter-trend trader or used the daily chart, we're going to have to be willing to sell weakness.
This week, watch the price action and read the order flow at $47.81 all week. Trader reaction to this level will tell us if the buyers are still coming in to support the uptrend, or if the selling is strong enough to start a three-week break.
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