May crude oil futures on the New York Mercantile Exchange on Monday hit a fresh two-plus year high of $113.46 a barrel. Prices then reversed course to close sharply lower, near the daily low and produce a technically bearish “outside day” down on the daily bar chart, whereby the daily high is higher and daily low is lower than the previous session’s trading range, with a lower close. Tuesday morning there has been strong follow-through selling pressure that has the crude oil market poised to produce a more significantly bearish “key reversal” down on the daily bar chart. A key reversal down in a market occurs when a new for-the-move high in price is made and then prices promptly reverse and produce an outside day down. The key reversal is then confirmed the next trading session by follow-through selling pressure. Confirmation of a bearish key reversal down with a lower close in May crude oil futures prices on Tuesday would be one early technical clue that a market top is in place.
The crude oil market bulls can correctly argue that May futures prices are still in a 7.5-month-old uptrend on the daily bar chart. It would take a move in May crude oil futures prices below the last “reaction low” on the daily chart, which is located at $102.70, to negate the aforementioned uptrend and to provide a more powerful signal that a market top is in place. Stay tuned! Jim Wyckoff