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

Although black gold increased after the EIA report showed that crude oil and gasoline inventories declined more-than-expected, the price of the commodity reversed and declined in the following hours. Will we see further deterioration in the coming week?

Crude Oil’s Technical Picture

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

Quoting our Monday alert:

(…) crude oil moved sharply higher and closed the previous week above the long-term green line, which suggests a test of the 2017 highs in the coming days. (…)

Yesterday, we added:

(…) crude oil broke above the upper blue resistance line based on the August and September highs, which suggests that we’ll see a realization of the above-mentioned scenario (…)

From today’s point of view, we see that the situation developed in line with our assumptions and black gold moved to the January peak, but there was no breakout above it. This show of bulls’ weakness triggered a pullback, which resulted in a comeback to the previously-broken upper blue resistance line.

What’s next for the commodity? On one hand, yesterday drop could be a verification of the earlier breakout, which could turn into one more upswing and re-test of 2017 high. However, on the other hand, this is a repeat of what we already saw earlier this year (the February peak) and there are no bullish implications of this move.

Additionally, the comments that we made on Tuesday remain up-to-date also today, increasing the probability of bigger decline in the coming days:

(…) This scenario is also reinforced by the current position of the daily indicators (we saw such high readings before important reversal in the previous months) and the situation on the medium-term chart (…) black gold remains in the yellow resistance zone, which stopped oil bulls several times in the previous months. Additionally, the RSI, the CCI and the Stochastic Oscillator climbed to the levels seen at the beginning of the year, which suggests that another reversal may be just around the corner.

(…) we would also like to draw your attention to the size of volume, which accompanied recent upswings. As you see, it visibly declines since the beginning of the week, which suggests that oil bulls may run out of steam and increases the probability of lower prices of crude oil in the very near future.

Before we summarize today’s alert, please note that yesterday drop materialized on significant volume, suggesting that oil bears may getting stronger, which could result further deterioration in the very near future.

Summing up, crude oil tested the January high (the upper border of the key resistance zone) and pulled back, which together with the current position of the indicators and the size of volume increase the probability of reversal in the following days.

Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: mixed

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