Crude Oil prices
The crude oil price failed to react to yesterday’s Aramco earnings. The market continues to consolidate the $40 level, although some cracking signs appear on the radar.
A shooting star forming on the daily chart points to a possible downside for the crude oil price. A similar pattern with the hammer, except that it forms at tops, and not bottoms, it shows that bears try to get in control at current levels.
Aramco reported its Q2 2020 earnings this past weekend. Unsurprisingly, the Saudi giant struggled with the lower crude oil price for the quarter and missed expectations.
Net income dropped to $6.57 billion for the quarter, compared with $24.69 for the same period in 2019. More importantly, free cash flow dropped dramatically, by almost 75%. However, despite the weak results, explained by the lower crude oil price for the period, Aramco announced that it keeps its dividend policy unchanged.
The price of crude oil sits at an important confluence area. The current consolidation, visible for the past two months, reflects investors’ indecision.
However, the bias favors a downside move. The recent shooting star is only the last bearish sign seen on the crude oil price chart, as the price also forms a bearish divergence with the RSI.
Moreover, the divergence takes the shape of a rising wedge – another bearish pattern. All three patterns – shooting star, bearish divergence, rising wedge – point in the same direction, but yet there is no reaction from the crude oil price.
To trade a possible break lower, one needs to wait for it to actually start. For this, place a pending sell stop order below $39 and target a move to the $30 area. As for the stop-loss, the shooting star highs should be enough to hold prices on any possible bearish break.
