When an asset is in a downtrend - it stalls at well-defined resistance. In simple terms - we call it hitting the ceiling
Brent Crude has hit the ceiling
Here's Brent Crude Daily Chart
As you can see in the chart above - Brent Crude before breaking down in Dec 2015 - had taken support at 42.5 and sustained that level for 5 months between August 2015 and December 2015. Now on the rally from lows - Brent Crude should stall at 42.5 and that's what precisely Brent Crude has done. Also, 200 dma seems to be converging to that level.
Also, when Crude first declined in 2014 from levels of 108 - the first major support it found was at $45 in January 2015. This is weekly chart
As you can see in the chart above - Brent Crude tried forming lows at $45 before breaking down below it. Hence on rally - Brent Crude will find significant resistance at $45. If we combine the above weekly chart and daily chart with 200 dma - one can easily say - Brent Crude is looking at combination of resistances between $42.5 and $45
THE ZONE OF RESISTANCE = $42.5-$45
The Fundamentals are not supportive. Crude Oil inventories continue to be very high. According to the U.S. Energy Information Administration, crude stockpiles increased 9.4 million barrels last week. It indicates that there is too much supply compared to demand. And then add dollar strength - there is no bull case for Crude Oil above $42.5-$45 resistance zone
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Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers