Technical Update: Brent Crude: Hanging man indicates a correction

Brent has been on an upward trend for weeks, but has slipped in recent days after touching $199.17 on 8^th February.

As the chart below shows, technical analysis based on data from the end of the day yesterday indicated Brent could be heading for a reversal, in a similar fashion to the technical post on WTI yesterday.

Firstly, we can see a pronounced “Hanging man” formation on the 15^th, when the within-day price fell $1.7 from opening to reach a low of $116.3, before closing back at $117.7. The formation shows that while there were buyers in the markets, they did not have enough power to completely overwhelm the bearish sentiment. What’s more, a similar pattern was seen yesterday when the grade closed at $117.52, slightly up on the open, but tested the waters as low as $116.56.

In addition to these signs, the technical MACD indicator provides a bearish confirmation; as the lower section of the chart shows, the MACD line has crossed over the signal line, indicating momentum may now be entering a bearish trend.

Indeed, in trading today we have seen a large fall in oil markets, with WTI falling $2 and Brent dropping $1.9. However there have been two fundamental reasons contributed to this fall; Bloomberg suggests a hedge fund liquidating its overall position caused a large sell-off, and with the March contract expiring today a rolling over to April contracts resulted in the March price dropping further.

While there seem to be fundamental reasons for the fall seen today in both WTI and Brent, it will be interesting if the fact that these drops have confirmed the signals discussed in Brent above, and in the WTI post yesterday, will result in prices of the two grades developing as predicted, which we’ll review at the weekend.