Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective.
On Tuesday, crude oil gained 1.44% ahead of weekly API supply data, but did this upswing change anything in the short-term picture of the commodity?
On Friday, the Baker Hughes reported that U.S. oil rigs dropped by 4 in the previous week to lowest level since August 2010.This report, in combination with the fact that U.S. stockpiles typically fall at this time of year (as refinery capacity increases ahead of the summer driving season) supported the price of light crude, fueling hopes that the API and EIA reports would show another decline in domestic crude oil inventories. Thanks to these circumstances, the commodity climbed above $60 once again, but did this move change anything in the very short-term picture? (charts courtesy of http://stockcharts.com).
Looking at the daily chart, we see that although crude oil moved lower after the market’s open, the proximity to the green support line and the 50-day moving average encouraged oil bulls to act, which resulted in an upswing above $60.
But did this move change anything in the very short-term picture? Not really, because the commodity remains in the consolidation (marked with blue) under the red resistance zone, which continues to keep gains in check. This means that our yesterday’s commentary is up-to-date:
(…) Taking (…) into account (…) the long-term picture (…), we think that further deterioration is just around the corner. Nevertheless, in our opinion, another bigger downward move will be more likely if we see a daily close below the green support line and the 50-day moving average (…). In this case, the next target (and the last stop before the Feb highs) would be the blue support zone ($56.50-$57.60). Until this time, short-lived moves (similar to what we saw in previous weeks) in both directions should not surprise us.
Summing up, although crude oil moved higher once again, the red zone continues to keep gains in check, which means that as long as there is no breakout above this area (which is also reinforced by the 200-month moving average, the long-term blue line and two bearish candlesticks formations) further rally is not likely to be seen and lower values of light crude should not surprise us.
Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: mixed with bearish bias
LT outlook: mixed with bearish bias
Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective. We will keep you – our subscribers – informed should anything change.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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