Oil Trading Alert originally sent to subscribers on December 28, 2015, 8:38 AM.
Trading position (short-term; our opinion): Short positions (with a stop-loss order at $39.12 and an initial downside target at $33.66) are justified from the risk/reward perspective.
On Thursday, crude oil extended gains as a combination of a weaker U.S. dollar and the EIA weekly report continued to weigh on the price of the commodity. Thanks to these circumstances, light crude gained 0.61% and climbed to the key short-term resistance line. Where will the commodity head next?
On Wednesday, the U.S. Energy Information Administration reported U.S. crude oil inventories dropped by 5.9 million barrels for the week ending on December 18. Although the report showed that gasoline inventories increased by 1.1 million barrels, distillate fuel inventories decreased by 0.7 million barrels on the week. These bullish numbers, in combination with a weaker greenback supported the price and pushed light crude to the key short-term resistance line. Where will the commodity head next? Let’s examine charts and find out (charts courtesy of http://stockcharts.com).
On Wednesday, we wrote the following:
(…) the current position of the indicators suggests that oil bulls will try to push the commodity higher and re-test the Aug low.
From the medium-term perspective we see that crude oil extended gains (as we had expected) and climbed above the Aug low, invalidating earlier breakdown, which is a positive signal that suggests further improvement.
But will we see such price action? Let’s examine the daily chart and look for more clues about future moves.
Quoting our Oil Trading Alert posted on Wednesday:
The first thing that catches the eye on the daily chart is a breakout above the upper border of the black triangle. This is a positive signal, which suggests further improvement. How high could the commodity go? We think that (…) the initial upside target would be the red horizontal resistance line based on the Aug low and then the upper border of the red declining trend channel.
Looking at the daily chart, we see that the situation developed in line with the above scenario and crude oil not only came back above the Aug low (invalidating earlier breakdown), but also climbed to our next upside target. Although this is a positive signal, which suggests further improvement, we should keep in mind that the upper border of the red declining trend channel was strong enough to stop oil bulls at the beginning of the month and trigger a decline. Additionally, Thursday’s move materialized on tiny volume, which suggests that we may see a reversal in the coming day(s). If we see such price action, and light crude moves lower from here, the initial downside target would be around $36, where the black support line base on the recent lows currently is.
Summing up, crude oil moved higher once again and reached the upper border of the red declining trend channel, which suggests a reversal and decline in the coming days. Consequently, in our opinion, the medium-term trend remains down and lower values of the commodity are still ahead us. Therefore, re-opening short positions (with a stop-loss order at $39.12 and an initial downside target at $33.66) is justified from the risk/reward perspective.
Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: bearish
LT outlook: mixed with bearish bias
Trading position (short-term; our opinion): Short positions (with a stop-loss order at $39.12 and an initial downside target at $33.66) 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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