Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
Despite the fact that oil bears once again managed to push the price of black gold lower, the sellers have reached a very important support zone, which may decide the fate of oil this week. What are the scenarios?
Let’s analyze the charts below (charts courtesy of http://stockcharts.com).
On Wednesday, we wrote the following:
(…) In our opinion, if the commodity extends losses from current levels, crude oil will test (at least) the green support zone based on the late-July and late-August lows (around $45.40-$45.62) in the very near future.
At this point, it is worth noting that in this area there is one more additional support, which can encourage the buyers to act. What do we mean by that? (…) the 61.8% Fibonacci retracement based on the entire 2016-2018 upward move.
Looking at the above charts, we see that the situation developed in tune with the last week’s scenario and the price of black gold not only declined to our downside targets, but also slipped a bit below them during the last session of the week.
Despite this bearish development, oil bulls have kept cool blood, closed the ranks and triggered a rebound before the Friday’s session closure, which resulted in an invalidation of these breakdowns.
Although it is a positive achievement, we must remember that the buyers do not have any allies at the moment of writing this alert. Very carefully analyzing the daily chart, we can see only one positive – a bullish divergence between the commodity and the daily RSI and Stochastic Oscillator, but it is definitely too little to believe in their strength and a potential reversal.
Therefore, we think that the most sensible investment solution is to observe their behavior during today's session. If they manage to maintain the above-mentioned green support zone, the chance to rebound and strengthen the price of black gold will increase slightly.
Unfortunately, if they fail once again and let the bear break below this are, we will probably see the continuation of the Wednesday scenario:
(…) Nevertheless, if oil bulls do not stop them there, the way to June 2017 lows (around $42.05-$43.16) will be open.
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.
On an administrative note, due to holiday travel plans, there will be no Oil Trading Alert on Wednesday, December 26, 2018. The next Oil Trading Alert is scheduled for Thursday, December 27, 2018.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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