Oil prices reached their highest level in eleven months in the middle of last week. The front-month futures contract did not post a key reversal on June 9, but the continuation contract did. Since reaching almost $51.70 then, prices have pushed lower, with lower highs and lower lows.
As this chart created on Bloomberg shows, a trendline drawn off the mid-February cyclical low, and hitting the early and mid-April lows comes in today near $47.70. The firmer dollar may be playing a role, but so is news that the US rig count has increased for two consecutive weeks now.
The broader technical tone has weakened. The RSI has turned lower. The MACDs are also turning lower with a bearish divergence. The five-day moving average may move below the 20-day moving average for the first time since mid-April later this week. Yesterday’s close was the first below the 20-day moving average since early April, which also speaks to the loss of momentum. A break of $47.80 now would likely signal a move below $47.00. Of note the, lower Bollinger Band (two standard deviations below the 20-day moving average) is found near $47.30.
Technically, it may make sense to look at the retracements of the whole move. The 38.2% of the rally since mid-February is a little below $42.00. However, if that was an overshoot, it might make more sense to take the retracement from the first correction to the recovery that took place in early April near $35. The 38.2% retracement of that move is found near $45.40 and seems like a more realistic target.