Trading position (short-term, our opinion; levels for crude oil’s continuous futures contract): No positions are currently justified from the risk/reward point of view.
Crude oil extended its uptrend on Friday, as it traded above the $74 price level. The market followed the decline in the U.S. dollar after last Wednesday’s FOMC Statement release. However, it has quickly reversed its upward course. Yesterday the price of crude oil fell back below the $70 price level after a bearish API Weekly Crude Oil Stock release of -0.879M barrels vs. the expected -2.900M barrels. This figure shows how much crude oil, gasoline and distillates stock is available in stores. So, a smaller than expected decline in inventories implies weaker demand and is bearish for oil prices.
Today we will get the Crude Oil Inventories release at 10:30 a.m. They’re expected to decline by 3.2M barrels.
New Downtrend or Just a Downward Correction?
In the last three trading days, crude oil has retraced more than 50% of its late July advances. The market reversed from the resistance level at around $74, broke the support level of $72, and then it has further extended the decline. Overall, the technical picture is bearish, and we may see some more downward pressure:
(the graph includes today’s intraday data)
This Looks Like a Medium-Term Topping Pattern
The market is trading below a month-long downward trend line. The medium-term resistance level remains at $77, marked by the early July high. The support level is at $65-66, marked by mid-July local lows, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):
The weekly chart of the Light Crude Oil Continuous Contract is still showing clearly negative technical divergences between the price and the indicators. However, there have been no confirmed negative signals so far; the market remains relatively close to the medium-term highs:
Conclusion
Oil retraced over 50% of its recent advances this week, following worse than expected inventories data, among other factors. We thought it was likely that the market would reach the next resistance level of around $76-77, and we were about to open a speculative short position there. However, crude oil bounced from the $74 resistance level and fell by around $5. At this moment, no speculative positions are justified from the risk/reward point of view.
As always, we’ll keep you, our subscribers, well-informed.
Trading position (short-term, our opinion; levels for crude oil’s continuous futures contract): No positions are currently justified from the risk/reward point of view.
Thank you.
Paul Rejczak,
Oil Trading Strategist
Sunshine Profits: Effective Investments through Diligence and Care
