Those looking to sell crude oil might soon get their chance.
Black gold tumbled on Wednesday, as it followed weakness in the equity market. Fundamentally speaking, crude's rally was overdone and was largely caused by short covering. On the long side, profits were taken once crude hit the $97.80 target.
(Poll: Is the Top in for Crude?)
Over the previous two sessions leading up to Wednesday, the market had tested the $95.90 and was able to hold that level. It gave hold on its third test, though, following the recent release of poor employment and manufacturing data, as well as government report that showed a build in inventories. The next major support at $95.55 did not hold and a retracement level at $94.75 also gave way. The market was able to slow down at $94.45 — the 50 percent retracement level on the way up.
We expect a consolidation day, as the equity market has bounced. Crude, though, will see pressure and will find it difficult to track equities when we have a U.S. dollar that is currently making new swing highs. Look for resistance against the $94.84 retracement level as a selling opportunity. At this time, only a close back above $95.55 or better yet, $95.90, will neutralize the sell-off.
(Read More: Oil Gives Up Gains after Dour US Data)
Realistically, the next down swing should test the $93.41 to $93.66 consolidation level that we saw before last week's rally. Below there, the next support sits at roughly $92.50.
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