One of the major events recent was the first US government
shutdown in 17 years. Light crude dropped to a new monthly low at
$101.05 on concerns that this event would reduce demand for black
gold in the world's largest oil consumer market. In the previous
week, the yellow metal also declined and dropped below $1,300 per
ounce. Despite these declines, on Wednesday, both commodities
rebounded sharply supported by a weaker US dollar as commodities
priced in the greenback became less expensive for holders of other
currencies. Additionally, in the second half of the previous week,
there was similar price action in both cases.
Taking the above into account, investors are probably wondering:
What could happen if the recent positive divergences between both
commodities remain in place? Can we find any guidance in the
Let's take a look at the charts below and try to find answer to
this question. We'll start with the daily chart of crude oil
(charts courtesy of
On the above chart, we can see that the situation improved slightly
in the previous week. Last Monday, crude oil dropped to a new
monthly low of $101.05 per barrel. With this move, the price of
crude oil declined not only below the August low, but also below
the 38.2% Fibonacci retracement level. Despite this drop, we saw a
pullback, which erased most of the losses late in the day.
In the following days, we saw further improvements as oil bulls
managed to hold this level. This positive event triggered another
pullback, which pushed light crude to the previously broken rising
medium-term support line on Wednesday. Additionally, the price of
light crude came back above the 38.2% Fibonacci retracement level
and the breakdown below this level was invalidated. Although crude
oil closed Wednesday almost at the rising medium-term
support/resistance line, the buyers didn't have enough strength to
break above this resistance until the end of the previous week.
Looking at the above chart, we can see that crude oil remains in
the declining trend channel. Therefore, if we see a breakout above
the medium-term support/resistance line, we could see a move up to
the declining short-term resistance line based on the August 28 and
September 19 highs -- currently close to the $106.4 level (marked
Please note that the nearest support is the September low and the
38.2% Fibonacci retracement level. If it is broken, the next
support zone will be slightly below $100 per barrel where the 50%
Fibonacci retracement level intersects with the June high.
Now that we know the current short-term outlook for crude oil,
let's take a closer look at the chart below and check the link
between crude oil and gold. Has it changed since my
previous essay on oil and gold
Let's examine the daily chart.
Looking at the above chart, we can see similar price action in both
commodities at the beginning of the previous week. They declined on
Monday, however, in the case of crude oil, and the buyers managed
to hold the September low in the following days, which resulted in
a sharp pullback on Wednesday. Meanwhile, gold declined and reached
its new lowest level since the August top. Despite this drop, the
rest of the week looked similar for both commodities.
, looking at the relationship between crude oil and gold, we notice
similar price action in both commodities in the previous week.
Therefore, if this relationship remains in place, we could see some
strength on a short-term basis in case of the yellow metal and
crude oil. However, we should still keep in mind that the recent
decline in crude oil is just slightly bigger than the previous ones
and light crude remains above the 38.2% Fibonacci retracement
level, which forms strong support.
From this point of view, the uptrend is not threatened at the
moment. At the same time, the downtrend in gold remains in place
and the yellow metal remains below the declining resistance line,
which has already successfully stopped buyers several times.
For the full version of this essay and more, visit
Nadia is a private investor and trader, dealing in stocks,
currencies, and commodities. Using her background in technical
analysis, she spends countless hours identifying market trends,
major support and resistance zones, breakouts, and failures. In her
writing, she presents complex ideas with clarity that enables you
to easily understand market changes and profit from them. You can
read Nadia's analyses at
where she publishes her articles on gold and crude oil