Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
During the first session of this week, the buyers pushed the black gold higher, which approached the price of the commodity to the barrier of $50 and woke up the bear's vigilance. What can we expect in the coming days?
Let’s take a closer look at the chart below (charts courtesy of http://stockcharts.com).
Looking at the daily chart, we see that oil bulls took crude oil higher during yesterday’s session, which resulted in a climb to the major short-term resistances (the red resistance zone and the upper border of the blue declining trend channel).
Despite this improvement, the buyers didn’t manage to hold gained levels and the price of light crude pulled back before the session closure, invalidating the earlier tiny breakout above the blue trend channel.
At this point, it is worth noting that the upper shadow of yesterday’s candlestick is visibly longer than the lower one (and bigger than the body of the candle), which confirms that the sellers are active around yesterday’s high.
Therefore, we believe that our yesterday’s comments on this commodity remain up-to-date also today:
(…) we should keep in mind that the price of black gold is still trading under the red resistance zone (created by the 61.8% Fibonacci retracement, the barrier of $50, the late-November and early-December lows) and the upper border of the blue declining trend channel.
Therefore, in our opinion, higher prices will be more likely and reliable if crude oil breaks above these resistances in the following days. If this is the case and the commodity extends increases from current levels, we’ll likely see an increase to around $53.30-$54.55, where the December peaks are.
(…) slightly above them we can notice the 38.2% Fibonacci retracement based on the entire October-December downward move, which serves as an additional resistance that could encourage oil bears to act once again.
However, (…), if the buyers show weakness in this area and fail to break above the red zone, the price of black gold will likely pull back and test the recent lows and the lower border of the blue consolidation (around $44.35-$44.40) in the near future.
Summing up, crude oil invalidated the earlier breakdown under the long-term line, but despite this improvement is still trading under the short-term resistances based on the previously-broken lows and the upper border of the declining trend channel. Therefore, as long as there is no breakout above them another pullback can’t be ruled out.
Trading position (short-term; our opinion): No positions are 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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