Trading position (short-term; our opinion): Short positions (with a stop-loss order at $56.45 and an initial downside target at $45.81) are justified from the risk/reward perspective.
On Wednesday, crude oil lost 1.36% and invalidated the earlier breakout above the upper border of the consolidation. Will this negative development trigger further deterioration in the coming days?
Let’s examine the charts below to find out (charts courtesy of http://stockcharts.com).
Quoting our previous alert:
(…) the key resistance area encouraged oil bears to act, which resulted in an invalidation of the small breakout above the upper border of the black rising trend channel. This suggests that further deterioration is very likely – especially when we take into account a potential double top formation and the proximity to the red gap marked on the weekly chart.
From today’s point of view, we see that oil bears pushed light crude lower as we had expected. With yesterday’s downswing, the black gold came back to the blue consolidation, invalidating the earlier breakout above the upper line of the formation, which is a negative event, which suggests further deterioration. On top of that, the weekly Stochastic Oscillator and both daily indicators generated sell signals, giving oil bears additional reasons to act.
Nevertheless, yesterday, after the market’s close, the American Petroleum Institute reported that crude oil inventories dropped 884,000 barrels, surprising market participants. Additionally, gasoline inventories dipped 893,000 barrels and distillates dropped a sharp 4.23 million barrels, which encouraged oil bulls to act. As a result, crude oil futures rebounded sharply earlier today, which suggests that the commodity will also move higher after the market’s open. In this case, we may see another re-test of the upper border of the black rising trend channel and the red resistance zone.
At this point, it is worth keeping in mid what we wrote on Tuesday:
(…) above this area (around $56) is also the upper border of the medium-term green rising trend channel, which successfully stopped oil bulls in October, December and January. This means that even if crude oil moves higher once again, the strong resistance is very close, suggesting that lower prices are just around the corner and short positions are justified from the risk/reward perspective.
Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: mixed
Trading position (short-term; our opinion): Short positions (with a stop-loss order at $56.45 and an initial downside target at $45.81) are justified from the risk/reward perspective. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
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.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
Gold & Silver Trading Alerts
Forex Trading Alerts
Oil Investment Updates
Oil Trading Alerts
