Oil chart shows bear market set to resume

Published Mon, Jun 1 20151:59 PM EDT

The rally in crude appears to be running out of steam with the commodity down 5 percent from its high last month. "We are recommending clients to sell crude here, as we appear to be reaching a ceiling very quickly," said Ari Wald, head of technical analysis at Oppenheimer. Despite a 45 percent gain from its low in March, the technician believes the long-term trend for WTI crude remains bearish. Even if oil trades sideways for a bit, crude will experience a selloff in the third or fourth quarter of 2015, according to Wald. One of the technical indicators used in his forecast is the slope of oil's 200-day moving average, which continues to trend lower. Source: FactSet Technical analysts, such as Wald, rely on statistics generated by chart patterns to form an investment outlook. Based on that analysis, the charts show that even if the rally was to advance, it will top at $65 and would proceed to head south from there, according to the technician. "Our conviction is that even if oil was to strengthen in the coming weeks, investors should use that strength to sell," reiterated Wald. Read More Beware: Bull market flashing warning signs But it's not just Oppenheimer that recommends to sell, other technical analysts noted how the risk/reward scenario for crude has become less attractive given the recent rally. "The easy money has been made," said Richard Ross, head of technical analysis at Evercore ISI, who thinks a strong dollar will continue to weigh on the commodity. The chart below shows the relationship between the U.S. dollar index and crude prices in the past year. Source: FactSet Historically, changes in the U.S. dollar and crude prices have been inversely correlated, as crude is priced in dollars. "Investors need to temper their expectations on crude due to the rise in the dollar," said Ross, who expects volatility to remain heightened with crude stuck in narrow range. The technician believes the price of oil will follow the drop that's occurred in shares of companies that sell oil, gold and other commodities. For example, the SPDR S & P Global Natural Resources ETF , which tracks companies involved in natural resources and commodity businesses, is down 6 percent from its recent high reached in mid-May. Source: FactSet "The current scenario is starting to remind me of gold," notes Ross, as an example of a commodity that has been on a consistent decline since reaching a record price in 2011, and remains down about 40 percent from those levels. As CNBC Pro noted last month, Goldman Sachs is among the major firms to forecast that oil will fall. In a note to clients two weeks ago, the investment bank warned that oil could drop back down to its 2015 low of $42 , a 30 percent decline from here. Then last week, Credit Suisse said that "speculative positions in oil are excessive and appear to have peaked," noting that ordinarily, this leads to a fall in oil prices.

David McNew | Getty Images

The rally in crude appears to be running out of steam with the commodity down 5 percent from its high last month.

"We are recommending clients to sell crude here, as we appear to be reaching a ceiling very quickly," said Ari Wald, head of technical analysis at Oppenheimer.

Despite a 45 percent gain from its low in March, the technician believes the long-term trend for WTI crude remains bearish.

Even if oil trades sideways for a bit, crude will experience a selloff in the third or fourth quarter of 2015, according to Wald.