Trading position (short-term; our opinion): Full speculative short position in crude oil with a stop-loss order at $70.22 and the initial downside target at $60.12 is justified from the risk/reward perspective.
Although the price of black gold moved higher after Monday market’s open, the resistance area attracted the sellers, who showed their opponents that they do not intend to give up without a fight. As a result, crude oil lost 0.73%, but despite this “tiny” decline the very short-term picture changed. How? Check out today’s alert.
Let’s take a closer look at the chart below (charts courtesy of http://stockcharts.com/).
In our last Oil Trading Alert, we wrote the following:
(…) Friday’s upswing materialized on significant volume, but it seems to us that it does not reflect the real strength of the bulls but only the exaggerated reaction of the buyers to Friday's news (after the OPEC agreed on a small increase in production).
Additionally, black gold closed the previous week under the red resistance zone (created by the May 30 high and the 61.8% Fibonacci retracement), which suggests that as long as there is no successful breakout above it reversal and lower prices of the commodity are very likely.
From today’s point of view, we see that the situation developed in line with the above scenario and black gold pulled back during yesterday’s session. Although oil bulls tried to push the commodity higher after the market’s open, the red resistance zone stopped them once again, encouraging their opponents to act.
As a result, light crude lost 0.73% and closed the day under the previously-broken 50% Fibonacci retracement and the 50-day moving average, invalidating the earlier breakout above these resistances.
This is a negative sign, which in combination with quite high volume suggests that further deterioration is just around the corner. So how low could crude oil go in the coming days? We believe that the best answer to this question will be the quote from our last alert:
(…) If (…) crude oil moves lower from current levels, we’ll likely see a comeback to around $64.14, where the upper red dashed support line (based on daily openings) currently is. An additional signal favoring this theory will also be a significant reduction in volume during today's session and increased activity of the supply side in the following days.
Finishing today’s alert, please keep in mind that bhif we see a breakout and a daily closure above the red zone, we’ll consider closing short positions. As always, we’ll keep you - our subscribers - informed should anything change, or should we see a confirmation/invalidation of the above.
Trading position (short-term; our opinion):Full speculative short position in crude oil with a stop-loss order at $70.22 and the initial downside target at $60.12 is justified from the risk/reward perspective.
Thankyou.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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