Crude Oil last week experienced the worse selloff for 2019 as it fell around -7% for the week. The price action has now confirmed the end of its uptrend, as well as confirming that the bears are back in total control of Crude. The reasoning for this is that the closing price on Friday is now comfortably sitting below its most recent low and support level of $60.40, which it smashed late in the week. In addition, the price action is also now firmly below the long term 52 day moving average (MA).
 
If you take a look at the chart back in late October 2018, which I have circled, you will notice a similar pattern shown. You an also see what followed next for Crude Oil, after the pattern was shown, closing below support and trading under the 52 day MA. Its not clear whether the same crash in prices is evident from the price action so far, but what is clear based on the weight of evidence from the chart, that at least over the next few weeks we are likely to see lower prices ahead, after we see some consolidation from the big moves seen last week.

Looking ahead for this week, I’m expecting to see some much needed consolidation with a potential move this week back to its old support now resistance, around $$60.40. This is because the price action at the end of the week respected support of $57.40 twice, with a double tweezer. The consolidation will allow the oversold price action to regroup as well as the 10 MA catch up to the current price action.
 
Provided Crude Oil holds and doesn’t firmly close above the $60.40 either this week or next, I’m looking for Crude Oil to rollover again soon and move back to $57.40 support, with an eventual target of $55 a barrel once we break the $57.40 support level.
 
If this scenario does eventuate it will likely also bring down the major stock indices of the Nasdaq, Dow & S&P 500. Of course in the era we now live in with the markets, we must also be aware of the possibility of the shock interventions of global Central Banks, when the markets are tanking, to reverse downside moves.

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The FANG index consisting of Facebook (FB), Amazon (AMZN) Netflix (NFLX) & Google (GOOGL), concluded the week on a very bearish tone, reversing all the gains made earlier in the week. With the market finishing at the lows of the week and back below support of 2,575 level. Based on how the index finished on Friday I’m expecting a move towards its 2,500 support in the week ahead.
 
The FANG index which in 2018 outperformed all of the US stock indices, is actually now under performing in 2019. The FANG’s has failed to reach or make a new all time high level from the Jan - April 2019 rally, unlike the S&P 500, Nasdaq index.

More importantly based on the price action that occurred over the last few weeks, saw the FANG index make a new lower low and lower high pattern on the failed rally attempt this week. This indicates that the FANG index is now firmly in a bearish position, with the sellers in control of the index and sitting below the 52 day moving average. This contrasts strongly with the DOW, Nasdaq & S&P 500 which have all failed to confirm a lower high as of yet.

Moving forward, depending on whether the index is able to hold the 2,500 level in the short term, will decide on whether the index moves straight pass 2,500 support level and make its way towards the 2,360 level over the next few weeks. Given where the current price action is relative to the distance from the 52 day moving average line, suggests the FANG index can easily reach the 2,360 on the next down leg move.

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This week saw a sell off in US stocks, as Trump once again via his tweets decided to rattle the markets, telling the world that China has breached the trade negotiations. With higher tariffs coming for China on Friday. This caused havoc in the markets as they immediately gaped lower
 
Fast forward to Friday where Trump confirms that tariff increases for China and we experience another weak trading day. Only to see something different from the previous 4 trading days. On Friday the markets were down over 1.5% and suddenly the markets stopped falling and began to climb for the remainder of the day, closing in the green and more importantly above the highs of the previous trading day. This was significant as it signaled at least in the short term for US stocks that we have likely reached a bottom.
 
Friday's trading session also showed us that since the S&P 500 made a new all time intraday record high two weeks ago, to the lows reached on Friday trading session the market has only fallen -4.3% peak to trough.
 
The price falls on Friday also happened to fill the gap that was recorded back on the 1st April went it gaped higher (see chart). The price action for Thursday & Friday also touched the 52 day moving average and then proceeded to close higher, indicating the overall market still remains in a bullish trend despite the pullback.
 
Based on Friday’s intraday reversal move higher, if the lows recorded hold in the short term and we move higher this week, the market will also have confirmed a higher low, indicating the market despite the mild sell off has experienced a pullback within a bullish trend move. This also means at least for now its not time to be bearish of the markets. But rather take this selloff as a much needed pullback in a bull trend.

So What Happens Next?

If the lows from Friday hold this week and the market continues to move higher, the potential next target for the S&P 500 is the prior support now resistance level at 2,930. However what we see unfold over this week and the next few weeks are key in determining if US stocks remain in a bullish trend, or whether we need to move towards a bearish stance going forward, especially as I expect volatility to remain for the next few weeks as the markets digests the new tariff increases.
 
If the S&P 500 fails over the coming weeks or months to make a new higher high, but instead begins to reverse and move lower towards the most recent lows creating a lower high, this would be the start to preparing to become bearish.  If a lower high was to occur and we followed this with a clear close below the most recent lows experienced on Friday, then the bullish trend would be over and we would need to look at bearish positions for the S&P 500. This would be because the index would have reversed trend with lower prices likely to occur now that the bears would be back in control. So we have to be open to staying flexible and fluid to what the price action tells us the next few weeks.

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Crude Oil suffered its second weekly fall last week following Trump’s tweets on OPEC & Gas prices. So far the market appears to be paying attention to Trump’s attempt to lower Oil.

Looking closely at the weekly Crude Oil chart, we can see that prior to breaking its uptrend line this week, the price on the weekly chart moved all the way back to a previous support (now resistance) level of $64.30. Once it reached this level, it made a few failed attempts to close above resistance.

This week's follow through selling, saw the price action breach the uptrend line that began in late December ‘18 similar to when the S&P 500 market rally started. The last time Crude Oil breached its uptrend line back in Oct 18 (see circled area), we saw the price of Oil fall further. Potentially -33% lower.

However, this time the breaching of its uptrend line has so far had different movements relative to the breach last October ‘18. For one, the price action of Oil is still trading above its 10 week moving average. Back in Oct 18 when it closed below the uptrend line it also closed below its 10 week moving average.

Another interesting point is back in October ‘18, the S&P 500 weekly price action was following in very similar lock step to Oil prices, with the S&P 500 also breaching its uptrend line & closing below its 10 week moving average. However, this week the S&P 500 has made a new all time high price.

So going forward we have to be open minded that we could see further pull backs ahead for Oil, while at the same time also looking out for the possibility that this could be a pullback / consolidation, within a long term rally even though its broken its uptrend level.

To become more bearish with Oil, we have to see a breach of its current support that it has so far been respected at $61.45, as well as a close below the 10 week moving average this week. If that happens, our next level of support to look for is around $59.

Conversely, to become bullish on Oil, we need to see support of $61.45 held this week, with a clear break above its $64.30 resistance level. If we see this occur, this would be a very bullish signal & a likely move to $67.70 would occur shortly after.

So for now we have to wait and watch to see what unfolds to gain a better understanding on where we head next.

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