Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
On Thursday, crude oil extended gains, which resulted in a climb to the very short-term resistance area. Taking into account the recent price action, it seems that oil bulls and their opponents test their powers before the next bigger move . Where will black gold head next in the coming week?
Let’s take a look at the daily charts below (charts courtesy of http://stockcharts.com).
Yesterday, we wrote the following:
(…) oil bulls (…) determination resulted in a rebound and a comeback above the mid-January highs (in terms of daily opening and closing prices).
Additionally, (…) we see that although the oil-to-gold ratio declined in recent days, the lower border of the blue rising trend channel stopped declines, triggering a rebound. Thanks to this price action, the ratio invalidated the tiny breakdown under this support line, which suggests further improvement.
What does it mean for crude oil? Taking into account the positive correlation between the ratio and the price of black gold, we think that further improvement in the ratio will encourage oil bulls to act and translate into (at least) one more upswing in crude oil in the coming days.
From todays point of view, we see that the situation developed in line with the above scenario and crude oil extended its move to the upside on Thursday. Despite this improvement, black gold climbed to the very short-term red resistance area, which triggered a pullback yesterday.
Earlier today, oil bears managed to push light crude even lower, which suggests that a reliable opportunity to open short positions is just around the corner. Nevertheless, to have a more complete picture of the current situation in the oil market we’ll wait for the weekly closing price.
As always, we’ll keep you - our subscribers - 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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