Oil Trading Alert originally sent to subscribers on August 11, 2014, 7:36 AM.
Trading position (short-term; our opinion): In our opinion no positions are justified from the risk/reward perspective.
On Friday, crude oil lost 0.28% as worries over the situation in Iraq and Ukraine waned. As a result, light crude reversed and re-tested the strength of the support zone. Will it stop further deterioration?
On Friday, the news that Russia had ended its military exercises near the Ukrainian border waned worries that further tensions between these countries could disrupt supplies from the region, which had a negative impact on the price of the commodity.
Additionally, U.S. President Barack Obama agreed to help the Iraqi air force coordinate attacks on Islamist militants in the north of the country by providing surveillance intelligence and target coordinates. These circumstances fueled hopes that strikes against insurgents will halt the advance from moving further south, where the country's main oilfields and export facilities are located.
As a reminder, the fact that Iraq's oil output hasn’t been affected as the insurgency hasn't reached the southern part of the country encouraged oil investors to sell the commodity for profits and pushed the price of crude oil below $105 at the turn of June and July. Will history repeat itself once again and crude oil decline without disturbing news from the region? Before we know the answer to this question, let’s examine the current technical picture of the commodity and find out if there’s anything on the horizon that could drive the price higher or lower in the near future (charts courtesy of http://stockcharts.com).
The situation in the long- and medium-term remains unchanged as crude oil is still trading in a narrow range, very close to important strong support levels. Therefore, what we wrote on Thursday is still up-to-date:
(…) Crude oil is very, very close to 2 strong support levels: the rising, long-term support line and the 200-week moving average. It seems that each of them could stop the most recent decline, or at least cause it to pause. Their combination, naturally, is even stronger. Consequently, the crude oil price is more likely to move at least temporarily higher shortly, even if the move doesn’t take the commodity much higher.
Can we infer something more from the very short-term perspective? Let’s examine the daily chart and find out.
Quoting our last Oil Trading Alert:
(...) If crude oil moves higher from here, the first upside target will be the May low, which stopped further improvement at the beginning of the week. If it holds, we’ll see a test of the strength of the recent lows (…)
On the above chart, we see that the situation developed in line with the above bearish scenario and crude oil came back to the green support zone. What’s next for the commodity? Taking into account the medium-term situation and combining it with the current position of the indicators (the CCI and Stochastic Oscillator generated buy signals), we think that light crude will rebound from here and oil bulls will try to push the price above the nearest resistance once again. Nevertheless, as long as crude oil remains below it an attempt to test the recent low can’t be ruled out.
Summing up, the overall situation hasn’t changed much as crude oil is still trading in a narrow range between the support and resistance zones, slightly above the rising, long-term support line and the 200-week moving average. Therefore, we think that as long as there is no breakout or breakdown above/below one of these areas, another sizable move is not likely to be seen and it’s worth to stay on the sidelines waiting for another profitable buying or selling opportunity.
Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bullish
Trading position (short-term): No positions are justified from the risk/reward perspective at the moment, but we will keep you informed should anything change.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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