Trading position (short-term; our opinion): Half of the short position (with the stop-loss order at $77.23 and the next downside target at $69.20) is justified from the risk/reward perspective.
The first session of the week proved that despite the efforts of both the bulls and the bears, the lower line of the short-term rising trend channel and the combination of the previously-broken lines hold the price of black gold in a fairly narrow price range. When can we expect a bigger move in any direction?
Let’s take a look at the charts below (charts courtesy of http://stockcharts.com).
Yesterday, the commodity moved lower after the market’s open and re-tested the support area created by the lower border of the green rising trend channel, the 50% Fibonacci retracement and the upper line of the black dotted triangle - similarly to what we saw during recent sessions.
Despite this downswing oil bears didn’t mange to hold gained levels, which was quickly used by their rivals. As a result, light crude rebounded once again and climbed to the previously-broken lower border of the black dotted triangle and the neck line of the reverse head and shoulders formation (the blue dashed line).
Positive development? Yes? Effective? Not at all. As you see on the chart, oil bulls disappointed for the second time in a row and the price of black gold dived under the above-mentioned resistances, invalidating the earlier tiny breakouts.
Thanks to this price action, market participants created a doji candlestick on the daily chart, which indicates the lack of decisiveness on the market – in other words neither the bulls nor the bears show an advantage at the moment.
However, if we focus on “the forest” and not only on “a single tree” (in other words, on the entire short-term picture and not only on Monday’s session), we’ll see that oil bears still have more technical factors on their side.
What do we mean by that?
Firstly, the long-term picture and seen on the monthly chart invalidation of the earlier breakouts above the upper border of the green rising wedge, the upper line of the red resistance zone, and the 38.2% Fibonacci retracement (more about this situation we wrote in our Friday’s alert).
Secondly, the medium-term picture and the pro-bearish evening star (you could read more about this issue in our yesterday’s commentary on crude oil).
Thirdly, the short-term developments, which continue to suggest lower prices of the commodity in the coming days: two unsuccessful attempts to go higher during recent sessions, which look like a verification of the earlier breakdowns, the sell signals generated by the indicators and decreasing volume during last upswings.
Taking all the above into account, we believe that (at least) one more downswing is still ahead of us. Nevertheless, another bigger decline will be more likely and reliable if the price of the commodity drops below the lower border of the green rising trend channel and the 50% Fibonacci retracement.
If we see such price action, we’ll probably significantly increase short positions. As always, we’ll keep you - our subscribers - informed should anything change.
Trading position (short-term; our opinion): Half of the short position (with the stop-loss order at $77.23 and the next downside target at $69.20) is justified from the risk/reward perspective.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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