Trading position (short-term; our opinion): Short positions (with the stop-loss order at $68.15 and the initial downside target at $56.57) are justified from the risk/reward perspective.

Although crude oil increased a bit after Thursday market’s open, the buyers quickly found that yesterday’s upswing above the resistance line was nothing more than the fakeout. After few days of disappointments oil bears finally took control and showed that they still have strength in their paws. If you want to know how this fight ended and how it affected the technical picture of crude oil, we invite you to read today's alert.

Technical Analysis of Crude Oil

Let's start with the broader perspective (charts courtesy of http://stockcharts.com).

Yesterday, we wrote the following:

(…) black gold is currently trading in the blue consolidation between February high and low, which together created the biggest red candle since months.

Therefore, if oil bulls want to go higher they will have to break above the upper line of the formation at $65.40. Until this time, reversal and lower prices are likely (…)

On top of that, when we zoom out our picture, we’ll see one more important resistance (…) the 200-month moving average, which stopped oil bulls two times in the previous months. Additionally, the sell signal generated by the Stochastic Oscillator remains in the cards, supporting lower prices of black gold in the coming month(s).

From today’s point of view, we see that the situation developed in tune with our assumptions and oil bulls finally pushed the price of black gold lower.

What impact did this drop have on the short-term chart?

Before we answer to this question, let’s recall the quote from our last Oil Trading Alert:

(…) crude oil extended gains after the market’s open, which resulted in (…) a climb to the major short-term resistance zone created by the January and February highs. (…) this area is also reinforced by the upper border of the black rising trend channel, which increases the probability of reversal (…)

Looking at the daily chart, the first thing that catches the eye is an invalidation of the tiny breakout above the upper border of the black rising trend channel, which triggered a quite sharp decline in the following hours.

Thanks to yesterday’s price action oil bears erased most of Wednesday's growth, which together with the above-mentioned resistances marked on the monthly and weekly charts suggests further deterioration in the coming week.

If this is the case and black gold goes to the south, we’ll see (at least) a decline to the lower border of the black rising trend channel (currently around $59.60), which intersects the major support zone based on the barrier of $60 and the upper border of the green rising trend channel (seen on the weekly chart).

Summing up, short positions continue to be justified from the risk/reward perspective as the major resistance area stopped oil bulls, triggering a pullback, which invalidated the earlier tiny breakout above the upper line of the black rising trend channel. This suggests that further deterioration and lower prices are just around the corner.

Trading position (short-term; our opinion): Short positions (with the stop-loss order at $68.15 and the initial downside target at $56.57) are justified from the risk/reward perspective. As always, we’ll keep you - our subscribers - 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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