Trading position (short-term; our opinion): Small (half of the regular size) short positions (with a stop-loss order at $61.13 and the initial downside target at $52) are justified from the risk/reward perspective.
On Wednesday, crude oil wavered around the major short-term support/resistance line, but finally closed the day below it. What does it mean for black gold?
Crude Oil’s Technical Picture
Let’s examine the technical picture of crude oil (charts courtesy of http://stockcharts.com).
Looking at the medium-term chart, we see that this week’s decline not only pushed away black gold from the upper border of the green rising trend channel, but also took crude oil under the previously-broken 200-week moving average. In this way, the commodity invalidated the earlier breakout, which doesn’t bode well for oil bulls – especially when we factor in the current position of the indicators (the sell signals generated by the RSI and the Stochastic Oscillator remain in place). Nevertheless, in our opinion, this factor will turn into bearish if we see a weekly closure under this average.
How yesterday’s decline affect the very short-term picture of light crude? Let’s examine the daily chart to find out.
The first thing that catches the eye on the above chart is a daily closure under the upper border of the black rising trend channel, which means that crude oil invalidated the earlier breakout above this line.
Additionally, the size of volume increased during yesterday’s decline, which together with the medium-term picture and the sell signals generated by the all daily indicators increases the probability of further declines in the coming days.
If this is the case and black gold extends losses from current levels, we’ll see (at least) a drop to around $54.81-$55.24, where the January peak and the mid-November lows are.
Summing up, short positions continue to be justified from the risk/reward perspective as crude oil invalidated the earlier breakout above the upper border of the black rising trend channel and the 200-week moving average, which increases the probability of further declines in the coming days.
Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: mixed
Trading position (short-term; our opinion): Small (half of the regular size) short positions (with a stop-loss order at $61.13 and the initial downside target at $52) are justified from the risk/reward perspective. We will keep you – our subscribers – informed should anything change.
As a reminder – “initial target price” means exactly that – an “initial” one, it’s not a price level at which we suggest closing positions. If this becomes the case (like it did in the previous trade) we will refer to these levels as levels of exit orders (exactly as we’ve done previously). Stop-loss levels, however, are naturally not “initial”, but something that, in our opinion, might be entered as an order.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
Gold & Silver Trading Alerts
Forex Trading Alerts
Oil Investment Updates
Oil Trading Alerts
