Trading position (short-term; our opinion): Short positions (with a stop-loss order at $54.21 and initial downside target at $43.37) are justified from the risk/reward perspective.

Crude oil started last week with a quite sizable (over 4%) rally and the move higher was accompanied by relatively high volume, however, the rest of the week was not as exciting. Crude oil moved back and forth and it seems that the situation is unclear. Still, there are a few clues that can help one detect what is likely to happen to crude oil price in the following weeks.

Let’s take a closer look at the chart (charts courtesy of http://stockcharts.com).

In Wednesday’s alert, we wrote the following:

The volume that accompanied yesterday’s upswing was indeed significant compared to what we saw in the previous few days, but please note that we saw similar spikes in volume close to local tops during both: this year’s move higher and last year’s decline. For instance, in late November 2015, crude oil topped right after the big-volume session.

As far as the price move itself is concerned, crude oil moved to the green resistance area that it broke just a few days ago. There was no breakout above it, so technically nothing changed. More importantly even if crude oil moves higher, the declining resistance line (currently at about $49) and the previous 2016 high are likely to stop the rally. Naturally, the above rally higher does not have to happen and today’s pre-market decline seems to confirm it.

The above remains up-to-date, but we would like to add that we saw an additional bearish confirmation in the final part of the week. Wednesday’s session was a decline on volume that was even bigger than the one that we saw on Tuesday and the 2 daily upswings that we saw on Thursday and Friday took place on even lower – and declining – volume. This kind of price-volume link has bearish implications and it’s in tune with the previous outlook.

Summing up, in the final part of last week, we saw additional bearish confirmations and thus the outlook remains bearish.

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, Gold & Silver Fund Manager

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