From a technical standpoint, a recent rally in Brent crude doesn’t seem to last long. Two bearish factors are seen on smaller timeframes. Let’s take a closer look.
1. Divergence with oscillators. For illustration, the chart above shows the deviation from the Relative Strength Index (RSI). After yesterday’s sharp ascent, the rally appears to be losing momentum and flattening out. Without any new significant catalysts on the horizon, Brent’s inertial move higher is likely to exhaust itself before a corrective phase kicks in.
2. Avoidance of local highs. Crude prices surged without revisiting key local highs along the way. The absence of corrective pullbacks to the $69.30 and $71.30 levels increases the likelihood of a retracement, as pressure continues to build.
The nearest downside target will probably be the very same local high of $71.30 per barrel. It is worth noting, however, that this is a purely technical signal that does not take into account both fundamental and economic factors that push quotes lower, nor does it account for Iran-related risks, which, on the contrary, provide significant support to oil prices.
The overall recommendation is to sell Brent crude in the short term. Profits should be taken at $71.30. Stop Loss could be set at $73.00.
The volume of the open position should be calculated so that the potential loss (protected by a Stop Loss order) does not exceed 1% of your deposit. If your account balance does not allow opening a position of this size, it is better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.
This content is for informational purposes only and is not intended to be investing advice.
