Hello and welcome to CantosCharts Masterclass. I'm Sandy Jadeja, Chief Technical Analyst with City Index. Welcome back to another video feature on using technical analysis, but as always, this simply is for information purposes only. So we'll continue using technical analysis to try to make some decisions in the current market environments.

Now we've all heard about the commodity prices moving, so today we're going to talk about one of the markets in the commodities arena.

And here we are, this is the price of oil and recently oil had seen a very, very, very sharp downturn. As you can see, we recently had a high at $114.83 and then from that point there we had a major key reversal.

Now a key reversal is when the market makes a new high followed by a negative close and as you can see on that bar, that's exactly what we had. So this is possibly giving us a major clue to what's going to happen next in oil.

But let's walk this through. So we know that the high is $114.83 and the low of that bar is $94.63. That's a major, major key area between these two levels, so we're going to have see a breakout either side.

Now, if we start adding some other elements, the first thing we notice in terms of patterns is that we had a double top.

So, as you can see from the 1, 2 formation, we had a new high, but then from that a key reversal and straight away the market had closed below the moving average.

Now this is a daily chart, so what you'll notice, that there have been times in the past where the market had closed below the moving average initiating a sell signal. We wouldn't have taken those and the reason behind that is that if we take a look at the weekly chart, we want to overlay the 20 period moving average on the weekly chart and if the market is trading above the 20 period moving average and the market then closes below the 20 MA on the daily chart, you would ignore all sell signals. But when it closes back above, you would initiate the long positions.

But here, in this instance, for short-term traders, if they had taken a signal, all the other signals wouldn't have generated decent returns, but this one had.

However, on a daily chart, we notice something which is really interesting. We're starting to see congestion take place. In other words, we've seen this big move towards the downside and now we're seeing some hesitation.

So this market is looking to see which way it's going to go next and there are further clues that we can look at. So $94.63 is a key area. So if this bearish move is going to continue, that would need to be taken out.

Now, if we take a look at the parabolics, we note straight away that on a daily chart, once the parabolic had been broken it was the next bar which had given the big move.

So at the moment, the parabolic indicator is still suggesting that the prices for oil should be heading towards the downside and as I said, the key number to watch for is $94.63.

If oil, and some other commodities, are going to continue their bullish trend, then clearly, the upside needs to be broken out and that's going to be hard work.

So my view is that once this consolidation has completed, we should see another leg most likely towards the downside if this is going to work as a continuation pattern and that's what we're seeing here.

So the two lines suggests, the upper line suggests where we previously saw support and the lower line suggests where we found support at $94.63. If crude oil prices continue towards the upside, then we would expect it to reach the upper resistance line and that's where we're going to start seeing a channel trading type of formation taking place right now.

But to help us the relative strength index, as you can see, there was a divergence. In other words, when we got the double top pattern, the second top on the indicator was actually lower than the first top. That was suggesting that there is a divergence, there is a weakness in the move towards the upside and hence we saw the pullback. At the moment, the relative strength index has of course taken an upturn. We would look for this to continue towards the upside. Once it reaches the upper side of that trend line and then once we see a candlesticks pattern giving us a reversal signal near the upper line, we would look for a continuation towards the downside.

So crude oil, amongst other commodity markets, is really, really starting to get very interesting, so over the next few weeks we certainly are going to keep an eye on price of oil, some of the softs as well, as well as the metals and of course the key indices.

But, for now, as always use the large degree timeframe for the overall trend and the short-term timeframe for entries and exits, so for the daily charts and the hourly charts and of course, we're going to be using technical tools to assist with decisions, But as always, keep it simple. I like using the very simple moving averages. I like using the parabolic indicator which we've been using throughout this series to give us good reversal signals. But of course, the candlesticks chart patterns are also useful.

So I hope this lesson has been useful to you. I look forward to seeing in the next trading lesson. In the meantime, have a safe and great trading week. This is Sandy Jadeja for CantosCharts Masterclass.