Trading position (short-term; our opinion): Short positions (with a stop-loss order at $52.52 and the initial downside target at $45.80) are justified from the risk/reward perspective.
On Wednesday, light crude moved a bit higher and closed the day above $49, but did this increase change the short-term picture of the commodity?
Crude Oil’s Technical Picture
Let’s take a closer look at the charts below (charts courtesy of http://stockcharts.com).
Yesterday, crude oil extended gains, but did this increase change anything? In our opinion, it didn’t. Why? As you see on the weekly chart, despite Wednesday’s move, the black gold is still trading under the purple declining resistance line based on the previous highs and the 50-week moving average, which together were strong enough to stop oil bulls in the previous months.
Additionally, the commodity increased to two important lines: the orange resistance line based on the August highs and the previously-broken lower border of the purple rising trend channel, which increases the probability of reversal – especially when we factor in the size of yesterday’s volume. As you see, Wednesday’s move materialized on visibly lower volume than Tuesday’s increase, which raises some doubts about oil bulls‘ strength (similarly to what we saw in mid-August).
What’s next for light crude?
We believe that the best answer to this question will be the quote from our yesterday’s Oil Trading Alert:
(…) not far from current levels (around $49.58-$49.90) are two other resistance levels: the medium-term red declining resistance line based on the February and April peaks and the 200-day moving average, which together with the above-mentioned resistance lines could stop oil bulls and trigger a reversal in the very near future [maybe even later in the day].
On top of that, if the commodity increases to the lower border of the purple rising trend channel and then reverses and declines, we will see another verification of the earlier breakdown under this short-term resistance, which will give oil bears a very important reason to act in the following days.
Summing up, profitable short positions continue to be justified from the risk/reward perspective as crude oil increased to several very important resistance levels, which could stop oil bulls and trigger another move to the downside in the very near future.
Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: mixed
Trading position (short-term; our opinion): Short profitable positions (with a stop-loss order at $52.52 and the initial downside target at $45.80) 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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