Trading position (short-term; our opinion): Long positions (stop loss at $37.23; initial upside target at $49.60) are justified from the risk/reward perspective.
Crude oil once again extended its rally yesterday and the question is if it’s going to end the rally anytime soon.
In short, nothing changed based on yesterday’s upswing (well, except for the profits on the current long trade, which increased) and basically everything that we wrote yesterday remains up-to-date. Consequently, today’s update will be very similar to what we wrote yesterday.
Let’s take a look at the chart (charts courtesy of http://stockcharts.com).
In our opinion, it’s still possible that we’ll see some kind of pause here as crude oil approached the red resistance area (April high, June lows, and the 50-day moving average). This resistance is not very strong, so a pause within a rally is all we could see, unless we see some additional bearish signs. We haven’t seen them yesterday.
The proximity of the upper border of the declining trend channel is more important (in terms of daily closing prices we saw a visible breakout above it), but still, it seems that a move to $50 or so will be seen before a potential reversal. Please note that most of the recent tops (since March) took place when the RSI indicator was at or close to 70. It is currently below 60, so RSI is not suggesting lower prices.
The same goes for Stochastic or CCI indicators: they moved to the overbought areas, but there were numerous situations (as visible on the above chart) when they stayed overbought for days and the top was not in (crude oil kept on rallying) until RSI moved above or very close to 70.
All in all, it seems that crude oil will move higher before a bigger decline is seen, although a pause here wouldn’t be surprising. The comments that we made on Friday remain up-to-date and if you haven’t had the chance to read our previous alert, we encourage you to do so today.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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