Trading position (short-term; our opinion): Profitable short positions with a stop-loss order at $71.34 and the next downside target at $66 are justified from the risk/reward perspective.

The last session of the previous week didn’t bring any groundbreaking changes, because the price of black gold was wavering once again around the Fibonacci retracement. What can we expect in the coming week?

Let’s check the chart below to find out (charts courtesy of http://stockcharts.com).

Technical Picture of Crude Oil

Looking at the daily chart, we see that the very short-term picture of crude oil hasn’t changed much as the commodity closed Friday’s session only 2 cents above Thursday’s closure. This means that what we wrote in our previous commentary is up-to-date:

(…) the price of light crude came back above the previously-broken 61.8% Fibonacci retracement, invalidating the earlier breakdown.

Although this is a positive development, we think that one more move to the downside is still ahead of us. Why?

(…) the sell signals generated by the RSI and the CCI continue to support the sellers. The Stochastic Oscillator generated a buy signal yesterday, but something similar we saw at the end of May. Back then, crude oil also rebounded, but as it turned out in the following days, it was nothing more than (…) upswing, which only paused the downward move.

(…) after that (…) crude oil extended losses, hitting fresh lows. Therefore, we think that history will likely repeat itself once again in the coming days.

Additionally, when take a closer look at the chart below, we’ll see that despite recent upswings, the commodity is still trading under the previously-broken 50-day moving average and the 38.2% Fibonacci retracement, which means that as long as there is no comeback above them, higher prices of light crude are not likely to be seen.

Nevertheless, the buy signal generated by the Stochastic Oscillator can encourage oil bulls to test the above-mentioned resistances before we see another move to the south.

If we see such price action and crude oil verifies the earlier breakdown, oil bears will receive an additional negative argument that will increase the probability of one more downswing to our downside target.

Summing up, profitable short positions continue to be justified from the risk/reward perspective as the short-term outlook remains bearish, favoring the sellers and lower prices of crude oil.

Trading position (short-term; our opinion): profitable short positions with a stop-loss order at $71.34 and the next downside target at $66 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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