Oil Trading Alert originally sent to subscribers on April 4, 2016, 11:26 AM.
Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
On Friday, crude oil extended losses after news that Saudi Arabia will freeze production only if Iran does the same. In this environment, light crude moved sharply lower and closed the day under $37. What’s next?
Let’s examine charts and try to answer this question (charts courtesy of http://stockcharts.com).
The first thing that catches the eye on the medium-term chart is a breakdown under the red declining support line. With the last week’s downswing crude oil declined also under the lower border of the blue consolidation, which is an additional negative signal that suggests further deterioration. But are there any factors that could hinder a pro-bearish scenario? Let’s examine the very short-term picture and find out.
From this perspective we see that the commodity dropped under the first support area (based on the late-Dec, Jan and early-March highs), which triggered a sharp decline on Friday. Thanks to this move, light crude approached the next support zone created by the 38.2% Fibonacci retracement (based on the Feb-March upward move), bottoms of the previous pullbacks and the lower border of the blue declining trend channel, which could encourage oil bulls to act. If this is the case, and light crude rebounds from here, we may see a test of the strength of the upper line of the trend channel (currently around $38.23) in the coming days.
Summing up, crude oil closed the previous week under the medium-term red declining support line and the lower border of the consolidation, which doesn’t bode well for the commodity. Nevertheless, Friday’s decline took light crude to the next support zone, which could encourage oil bulls to act in the coming days.
Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed
Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective. We will keep you – our subscribers – informed should anything change.
As a reminder – “initial target price” means exactly that – an “initial” one, it’s not a price level at which we suggest closing positions. If this becomes the case (like it did in the previous trade) we will refer to these levels as levels of exit orders (exactly as we’ve done previously). Stop-loss levels, however, are naturally not “initial”, but something that, in our opinion, might be entered as an order.
Since it is impossible to synchronize target prices and stop-loss levels for all the ETFs and ETNs with the main market that we provide this level for (crude oil), the stop-loss level and target price for popular ETN and ETF (among other: USO, DWTI, UWTI) are provided as supplementary, and not as “final”. This means that if a stop-loss or a target level is reached for any of the “additional instruments” (DWTI for instance), but not for the “main instrument” (crude oil in this case), we will view positions in both crude oil and DWTI as still open and the stop-loss for DWTI would have to be moved lower. On the other hand, if crude oil moves to a stop-loss level but DWTI doesn’t, then we will view both positions (in crude oil and DWTI) as closed. In other words, since it’s not possible to be 100% certain that each related instrument moves to a given level when the underlying instrument does, we can’t provide levels that would be binding. The levels that we do provide are our best estimate of the levels that will correspond to the levels in the underlying assets, but it will be the underlying assets that one will need to focus on regarding the sings pointing to closing a given position or keeping it open. We might adjust the levels in the “additional instruments” without adjusting the levels in the “main instruments”, which will simply mean that we have improved our estimation of these levels, not that we changed our outlook on the markets.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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