Barclays Says: Oil May Drop on Double Top

(Bloomberg) -- Oil may drop toward $42 a barrel after prices formed a “double top” pattern, technical analysts at Barclays Capital said. A double-top is a W-shaped formation with two similar high- points. A drop below the lowest point between the two peaks can be a signal to sell, according to analysts who use charts to forecast prices.

Oil “completed a month-long double top formation” on April 20, Barclays analysts led by Chief European Technical Strategist Phil Roberts said in a report. The contract for June settlement in New York closed at $48.51. That’s under the low reached between March 26, this year’s high, and April 3, oil’s subsequent peak.“Our downside bias remains,” Barclays’s analysts said. “Bounces should be seen as an opportunity to go short. Bigger picture, the double-top targets a move toward $42.”

Crude futures on the New York Mercantile Exchange last traded at $48.88 a barrel as of 10:59 a.m. in London. On March 26, the June contract reached $56.10, the highest this year, and rose again to $55.85 on April 4.In addition, on April 20 prices closed below a support level formed by a three-month trend-line. This line will now act as a resistance level, impeding rallies above $52.27, according to Barclays.