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.
On Tuesday, the price of crude oil moved higher during the session, but oil bears, thanks to the help of their ally, pushed back the bulls’ attack, which resulted in black gold’s comeback to the starting point. Surprising or rather it should happen here?
Let's examine the daily chart (charts courtesy of http://stockcharts.com).
Looking at the daily chart, we see that although oil bulls triggered further improvement after the session’s open, the proximity to the red resistance zone (created by the black declining resistance line, the 61.8% Fibonacci retracement and the previous peaks) stopped them slightly above $63.
This show of weakness encouraged oil bears to act and resulted in a pullback, which means to us that as long as there is no breakout above the red resistance zone higher prices of light crude are not likely to be seen.
Additionally, negative factors from our previous Oil Trading Alert remain in the cards, supporting further deterioration in the coming days:
(…) the commodity is still trading under the previously-broken lower border of the blue rising trend channel and the lower line of the black rising wedge (marked with dashed lines).
This means that the earlier breakdowns under these lines remain in the cards, supporting oil bears. When we take a closer look at the chart we can also notice that despite yesterday’s increase, the volume was smaller than day before, which raises our doubts about the credibility and the strength of this rebound.
Taking all the above into account and combining it with the fundamental picture of black gold (we wrote more about this issue on Monday), we think that another reversal and lower prices are just around the corner.
As always, we’ll keep you - our subscribers - informed should anything change.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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