From Corey Rosenbloom: Crude Oil gives us a textbook example of a reversal pattern – with negative divergences – into resistance.

If you missed trading this move, that’s fine as this pattern will repeat in various markets – including yours.

Here’s the pattern and combination of reversal factors for your educational benefit:

First, the $53/$54 price level in Crude Oil was a key focal point for traders.

Second, the upper Bollinger Band hovered just beneath $55.00 per barrel.

Also, price “stabbed” up twice on bearish reversal candles into this level in December (upper shadows).

Negative Momentum AND Volume Divergences served as non-confirmations of the new price high.

Finally a Bearish Rising Wedge Price Pattern developed when all these factors were in place.

Here’s a “Zoomed-In” View of the whole reversal situation developing:

We even had a five-wave minor Elliott Pattern for those so inclined to count Elliott Waves.

What’s the point?

A price reversal doesn’t occur in isolation; there are often many factors (beyond these) which occur BEFORE price reversals materialize.

For now, we see a plunge from $55.00 to $50.50 which is the first target – the 50 day EMA and lower Bollinger Band.

When you’re trading, be on guard for things that look suspicious like any of these factors. It may be time to stop trading with the trend.

In this case, we had a price high, reversal candles, upper Bollinger Band, five-wave Elliott Count, a Bearish Rising Wedge Pattern, and Negative Divergences in both Momentum and Volume.

No pattern will be perfect, but the more evidence you gather, the greater the odds will be of an big move.

On the ETF side of things, the United States Oil Fund LP ETF (NYSE:USO) — which is the most popular way to play crude oil using ETFs — rose $0.12 (+1.06%) in premarket trading Thursday. Year-to-date, USO has declined -2.99%, versus a +1.60% rise in the benchmark S&P 500 index during the same period.

USO currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #40 of 123 ETFs in the Commodity ETFs category.

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