Royal Dutch Shell’s share price just came down to a very interesting level…again. Price recently fell down to the 0.382 retracement level of the prior rally that spanned from January 2016 to May 2018, shown in the weekly chart in figure 1.
Since then, the share price has been in a consolidation period. It is forming a descending triangle, shown by the red lines, which is an intrinsically bearish pattern of consecutively lower highs and equal or similar lows. Descending triangles usually end with a breakout to the downside below support which kicks off a new bear move.
Look at how volume and Average True Range (ATR) are both declining throughout most of the duration of the rally. This is indicative of underlying weakness in the move, which corresponds with the bearish sentiment around the descending triangle. This suggests a reversal of the trend is likely which would bring prices down to prior support. It’s extremely likely that there would be at least some minor support at one or both of the 0.5 and 0.618 levels, but a serious downtrend may bring prices back as low as the 1260s GBX.
For a downtrend to occur, price first has to break out of the triangle pattern. This could happen anytime since price is hovering just above the support level currently. However, this retest has more support than previous ones because the 200-week moving average has converged on support, giving it extra strength. This may give the market enough support for one final retest of the descending resistance, or (unlikely but possible) a full continuation of the bull market.