Brent Crude is is downtrend. This means that sooner or later - Brent Crude will encounter stiff resistance on its way up. The Big question: Where?
Here's Brent Crude weekly Chart
As you can see in the chart above: Brent Crude in its first fall declined from 115 levels to 45.5 between June 2014 and Jan 2015. It was a pretty steep fall. Brent Crude then held that level of 45.5 for long before even breaking down that level too in Nov 2015. Technically - it meant breakdown of Support of 45.5.
When any asset breaks down below the defined support - then it becomes resistance.
What happened after breakdown below 45.5 -
Brent Crude tanked to levels below 30 by Jan 15. It was such a dramatic fall that it triggered sell off in equity markets too.
Pullback Rally - As it always happens - after a significant decline - asset makes every effort to comeback - Brent Crude too did that and has rallied from levels below 30 to now at 45 - the level from where it broke off. What's fascinating - that even 50 week moving average -technically a strong level that can work as resistance has also come down to levels near 45.5
1. In a strong downtrending asset: 50 week moving average acts as strong resistance on any pullback. That level now stands at 46.6
2. When a strong support breaks down - then on pullback it acts as strong resistance
If we combine the above two: Brent Crude should offer significant resistance between 45.5 and 47. In markets - nothing is certain. All we can do - develop scenarios based on price action.
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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