Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.

Yesterday, crude oil gained 0.69%, bounced off the support zone and the 200-day moving average, which resulted in a comeback above the lower border of the medium-term rising trend channel. Will this positive event be enough to trigger further improvement in the coming week?

Let’s examine the charts below (charts courtesy of http://stockcharts.com).

Technical Picture of Crude Oil

Quoting our last Oil Trading Alert:

(…) oil bears not only tested, but also managed to closed Wednesday’s session below both support lines. Is this a negative event? Yes. Does it justify reopening short positions? Unfortunately, not. Why?

First, thanks to yesterday’s drop, black gold declined to the green support zone, which managed to stop the sellers and trigger a sizable move to the upside in June.

Second, this area is also reinforced by the 61.8% Fibonacci retracement and the 200-day moving average, which serve as additional supports at the moment.

Third and the most important, crude oil slipped to the lower border of the green rising wedge seen on the monthly chart below.

Therefore, in our opinion, as long as there is no breakdown below these important supports, another sizable decline is doubtful and reversal from here should not surprise us in the coming days.

Looking at the daily chart, we see that the above-mentioned green support zone encouraged oil bulls just as we had expected. Thanks to yesterday’s rebound black gold closed the day above the previously-broken medium-term red line, invalidating the earlier breakdown.

Although this is a bullish development, we should keep in mind that the commodity is still trading under the second resistance line – marked with blue, which means that as long as there is no breakout above it, higher prices of crude oil are doubtful.

Nevertheless, if we see weekly closure above the red line (which is also the lower border of the blue rising trend channel seen on the weekly chart below), oil bulls will receive one more important reason to act in the coming week.

On the other hand, please keep in mind what we wrote yesterday:

(…) if oil bears manage to take the commodity lower (and we see confirmed breakdowns), we’ll re-open short positions (very probably bigger positions than usual). Until this time, waiting at the sidelines for a confirmation or invalidation of the above is justified from the risk/reward perspective.

Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective. We will keep you 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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