The upper resistance threshold of $88.0 for the long-term bearish formation was challenged last week when an $88.63 swing high was made. Upon observation, the top of the formation, which began on May 25, 2010, was overcome, however, December failed to close over $88.0. Subsequently, prices have fallen to $82.11 thus far.
As shown in the chart below, after each time the top of the bearish formation was tested a significant decline and major test of support has taken place. This is the case once again and it looks as though another major test of support will occur in the near term.
CLZ10 Long-Term Bearish Formation
The wave formations and other technical factors show that the decline will likely continue to at least $81.6, a crucial support point, before tomorrow's EIA stats are released. A close below $81.6 would indicate that the move up is probably over for now and would call for $80.1 and then $78.0.
There are no positive technical factors in the immediate term, but because the decline has taken place so quickly, a correction of the down move may take place first before $81.6 is tested. First resistance at $83.5 is expected to hold. A move above $83.5 before the EIA stats are released would indicate that a more substantial correction was underway with $84.6 as next resistance.
The $82.11 low fulfilled the 38% retracement of the move up from $71.5 to $88.63. The 50% retracement is $80.1 and the key 62% retracement is $78.0. A close below $78.0 would confirm that the move up has ended for now and would open the way for the mid to low $70s.
CLZ10 Retracements to $88.63
First resistance at $83.5 is the 21% retracement from $88.63 to $82.11. As stated above, a minimal correction should hold $83.5. Above this, next resistance is $84.6 followed by $85.4 and then $86.1, which are the 38%, 50% and 62% retracements, respectively.
CLZ10 Retracements to $82.11
Intraday Moving Average Table
The $83.5 level is in line with the 5-peroid moving average on the 240-minute chart. The $85.4 level lines up with the 21-period moving average on the 240-minute chart and is the 5-day (weekly) moving average.
CLZ10 Intraday Moving Averages
The candlesticks do not show any positive patterns, but do confirm resistance. The midpoint of Tuesday's body lines up with $83.5 and the confirmation point (open) is near $84.6. The midpoint of last Friday's bar also lines up with $85.4 resistance.
CLZ10 Daily Candlesticks
Review of Momentum Status
The KaseCD shows a bullish divergence setup on the intraday charts. This means that the move down is becoming exhausted; at least in the near term, and that a correction to test resistance before the move lower continues may take place soon. New lows may still be made before the divergence completes, so not too much can be read into this potential positive signal yet.
CLZ10 Intraday Momentum
To summarize, a deeper test of support to at least $81.6 is likely before the EIA stats are released tomorrow morning. The $81.6 target is major support and a close below this would indicate that the move up has likely ended for the near-term.
Because the decline has taken place so quickly over the past few days, the move down may stall and test resistance first, but $83.5 is expected to hold. A move above this before the EIA stats are released would indicate that a more substantial correction to $84.6 and possibly higher was underway.