Oil Trading Alert originally sent to subscribers on March 31, 2014, 7:41 AM.
Trading position (short-term; our opinion): In our opinion no positions are justified from the risk/reward perspective.
On Friday, crude oil gained 0.31% as upbeat U.S. personal spending data weighted on the price. Thanks to these numbers, light crude extended gains and closed the day above $101 per barrel once again.
On Friday, crude oil extended gains after data showed earlier that U.S. personal spending rose 0.3% in February (in line with expectations), while the core PCE price index remained unchanged at 0.1% last month (also in line with expectations). The solid reading fueled hopes that the slowdown in economic activity seen at the beginning of the year would be temporary and supported crude oil, pushing the price above $102. However, despite these positive numbers, light crude gave up some gains as the University of Michigan reported that its consumer sentiment index moved to 80.0 in March, while analysts had expected an increase to 80.5 this month.
Having discussed the above, let’s move on to the technical changes in the crude oil market (charts courtesy of http://stockcharts.com.)
Looking at the above chart, we see that crude oil extended gains and reached the next upside target - the 61.8% Fibonacci retracement. If this resistance level encourages oil bears to act, we may see a pullback in the coming day (or days). If this is the case, the first downside target will be the previously-broken 200-day moving average (currently at $100.45). However, if this resistance is broken, light crude will likely increase to the 70.7% Fibonacci retracement (around $102.92), which corresponds to the March 7 high. On one hand, a pro growth scenario is reinforced by the current position of the indicators (buy signals still remain in place and support oil bulls), but on the hand, we should keep in mind that Friday’s upswing materialized on decreasing volume (compared to the preceding days), which questions the power of the buyers.
Having discussed the current situation in light crude, let’s take a look at WTI Crude Oil (the CFD).
As you see on the daily chart, WTI Crude Oil extended gains and broke above the 61.8% Fibonacci retracement on Friday. However, this improvement was only very temporarily and the CFD gave up the gains in the following hours, finishing the day below this resistance level. Earlier today, the situation hasn’t changed much, therefore, what we wrote in our last Oil Trading Alert, is still up-to-date.
(…) If this resistance encourages sellers to act, we may see a pullback to the previously-broken 50% Fibonacci retracement. However, if oil bulls do not give up and broke above this level, we will likely see an increase to the 70.7% Fibonacci retracement (around $102.79). (…) this area is reinforced by the March 7 high.
Looking at the current position of the indicators, we see that the CCI and Stochastic Oscillator are overbought, which suggests that a pause or a pullback is more likely to be seen in the coming day (or days). Please note that if the CFD drops below the nearest support, the next downside target will be around $100.22, where the 38.2% Fibonacci retracement (based on the entire recent increase) is.
Before we summarize today’s Oil Trading Alert, let’s take a look at the 4-hour chart.
From this perspective, we see that the CFD still remains below a strong resistance zone created by the 61.8% Fibonacci retracement and the upper line of the rising trend channel (marked with orange). Therefore, if the combination of these two important resistance levels encourages oil bears to act, we will likely see a pullback in the following hours.
Summing up, although the short-term situation has improved as crude oil reached the 61.8% Fibonacci retracement, this upswing materialized on decreasing volume (compared to the preceding days), which questions the power of the buyers. Additionally, the current situation in WTI Crude Oil suggests that a pullback is just around the corner (the CFD remains below the strong resistance zone, while the daily CCI and Stochastic Oscillator are overbought). Connecting the dots, if the CFD declines before the market open, it will have a negative impact on light crude and we will also see a correction in crude oil.
Very short-term outlook: bullish
Short-term outlook: mixed with bullish bias
MT outlook: bullish
LT outlook: mixed
Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective. We will keep you informed should anything change as far as our opinion is concerned, or should we see a confirmation/invalidation of the above.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
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