Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
The beginning of the week took the price of crude oil lower once again. A fresh multi-week low, a test of medium-term support and a rebound. Quite a lot happened during yesterday's session. However, when the emotions already subsided, the question arises: did yesterday's strong oil bulls' answer to the drop suggest that black gold would back above $ 70 in the following days?
Let’s examine the charts below (charts courtesy of http://stockcharts.com).
Technical Picture of Crude Oil
In our yesterday’s Oil Trading Alert, we wrote the following:
(…) black gold bounced off session’s low and increased to slightly below the previously-broken black dotted line based on July peaks. Nevertheless, we didn’t see a test of this resistance. Instead, the commodity pulled back a bit, which suggests that one more downswing may be just around the corner – especially when we factor in the sell signal generated by the Stochastic Oscillator.
If this is the case and oil bears push light crude lower, we’ll see a re-test of the recent lows or even a drop to the above-mentioned medium-term support lines. However, in our opinion, re-opening short positions is not justified from the risk/reward perspective at the moment of writing this alert as the space for declines seems too small. Therefore, sitting on recent profits and waiting for another profitable opportunity seems to be the best investment idea for the moment.
From today’s point, we see that the situation developed in line with our assumptions and crude oil rebounded after a decline to a fresh summer low of $65.71 and the blue support line based on February and June lows.
Despite this improvement, the commodity closed the day under the back dotted line, which serves as the nearest resistance. Earlier today, oil bulls tried to break above it, but as long as it remains in the cards, higher prices of light crude are not likely to be seen.
Nevertheless, taking into account the importance of the support zone that stopped the sellers yesterday and the current position of the daily indicators (the CCI is oversold, while the Stochastic Oscillator is very close to generate a buy signal), we think that further improvement is just around the corner.
If this is the case and oil bulls show strength, the price of the commodity could climb to 38.2% Fibonacci retracement based on the July-August declines or even test the barrier of $70 in the following days.
Therefore, if black gold closes today’s session above the black dotted line (above $68) and buy signals appear, we’ll consider opening long positions. As always, we’ll keep you - our subscribers - informed should anything change.
Trading position (short-term; our opinion): No positions 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.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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