WTI crude technical analysis: how will prices react to tomorrows EIA inventories report?

Tonight’s industry-backed API crude inventory report showed US domestic crude stocks increased a staggering 8.97 million barrels, way above the estimate of a 0.5 million rise predicted by a Bloomberg survey.  Following the announcement, WTI prices declined by approximately $0.5, although had risen by nearly $0.8 in the two hours before the announcement. With tomorrow’s EIA report likely to show a similar rise in stocks, and markets trading down today due to the Bank of Japan refraining from adding additional stimulus, do the technical support the view that crude could fall further?

On the daily chart below we have three indicators shown; Bollinger bands, the MACD and the William %R. At the moment neither the MACD or William %R have cross into selling territory, as we would expect the green MACD line to cross the red signal line or the zero line and the W%R to cross below -50. As we can see from the latest candlestick on the daily chart, the reason for these both remaining some strength is that the WTI crude price rebounded from its earlier low of $94 to its current level of $94.86. Given the rebound happened before the much higher than expected rise in inventories, we can gather some clues from the higher frequency charts as to whether the price may decline further tomorrow.

On the 30-minute chart below, the same three indicators show that crude is also testing its 30 minute middle-Bollinger band (the 20-day MA), the MACD lines are in a similar place to the daily chart and while the W%R has already crossed below the -50 mark.

With both charts testing typical support areas, the MACDs approaching a potential cross-over selling signal and the W%R of the higher frequency already giving a sell signal, signs are strong that WTI has the potential to carry on falling further if economic sentiment remains bearish tomorrow. However, traders looking to go short should wait until a full set of signals are received. On the higher frequency charts, resistance areas can be seen at around $94.5-94.4. If this boundary is breached, we should expect to see WTI fall to the $94 boundary, which marks both the 20 and 200 day MA. 

WTI Crude Technical Analysis: Further to fall?

WTI has trended downward from a high of $96.8 on 20^th May to reach as low as $91.20 at the start of the week, before rebounding back up to where it currently sits at $93.8. While the grade saw some strength in the last couple of days, the question we need to answer is whether this is a rebound from technical resistance that will result in an upward trend, or whether the grade is destined to fall further over the coming days. To answer this question, let’s look at some of the technical indicators.

Firstly, two oscillating indicators, the MACD and Williams %R both give slightly bearish signals on the daily chart. In terms of the MACD as shown below, there was a signal crossover back at the fall from the peak price on the 21^st, while a zero-line downward cross was seen at the middle of last week. Both predicted the trend over the following days well, and both remain in bearish territory, albeit with the MACD showing some sign that it could cross the signal line if positive momentum continues.

The Williams %R below shows similar signs, with the indicator having made a bearish cross back on the 22^nd May when it fell below the -50 mark, before falling deep into oversold territory on Friday 31^st May. Such oversold signs could go to explain the current rebound, in which the indicator is yet to test either the -50 mark or the overbought area at -20 and above and hence remains somewhat inconclusive.

Importantly though, Bollinger band patterns appear to be showing an “M top” pattern, in which the WTI grade failed to reach the upper Bollinger band on either of its last two high-points, with the second point diverging further than the first. This was followed by a strong cross of the middle-band and the crossing of previous support, with the grade settling below its lower band on two occasions in the last four sessions, showing the strength of the bearish momentum and suggesting that the latest rebound could be a slight correction on a downward trend rather than the reversal of that trend.

Trade Recommendation

With tomorrow the day for the weekly EIA report, the results will be the perfect opportunity for bears to grapple with the bulls and determine whether this downward trend for WTI will continue. I believe such an outcome is likely, and unless WTI shows signs of breaking above the $94, or if the grade does break above but then falls back strongly, then I suggest selling WTI with a target of  $92-$91.5.