Trading position (short-term; our opinion): Short positions (with a stop-loss order at $54 and the initial downside target at $46) are justified from the risk/reward perspective.
On Friday, crude oil gained 1.68% as the combination of bullish Chinese imports data and increasing tensions in the Middle East pushed the price of the commodity higher. As a result, light crude closed the day above $51, but finished the whole week under the major resistances. Will they manage to stop oil bulls in the coming week?
Crude Oil’s Technical Picture
Let’s take a closer look at the charts below and try to find out (charts courtesy of http://stockcharts.com).
On Friday, crude oil moved higher, but closed the day under the upper border of the red resistance zone (created by the May highs). Additionally, the commodity closed the whole week below the long-term green resistance line based on the August and November 2016 lows, which together with the sell signal generated by the Stochastic Oscillator (and the current position of the CCI) suggests that another move to the downside may be just around the corner – especially when we factor in the fact that the size of volume during declines is still bigger than during increases.
On top of that, that black gold remains under the blue line based on the potential left shoulder of the head and shoulders formation (marked on the monthly chart below). Of course it will be more bearish and reliable only if crude oil falls below the neck line of the pattern (the blue support line based on the August 2016 and June 2017 lows around $43.20 at the moment of writing these words), but taking all the above into account, we think that oil bears will try to create the right shoulder of the pattern in the following weeks.
Crude Oil and Its Ratios
This pro bearish scenario is also reinforced by the situation in the oil-to-gold ratio.
On the daily chart, we see that despite Friday upswing, the ratio is still trading below the 200-day moving average, the 50% Fibonacci retracement and the upper border of the blue rising trend channel, which together with the fact that there are no buy signals (which could encourage bulls to act) suggests another attempt to move lower (in the case of the ratio and also in the case of crude oil) in the coming week.
Additionally, looking at the current situation in the WTC:UDN ratio, we’ll see that crude oil priced in "other currencies" closed the previous week under the key resistance lines: the red declining resistance line based on February and April highs, the upper border of the green rising trend channel and the 50-week moving average.
As you see, the combination of these resistances continues to keep gains in check since late September, which suggests that as long as there is no breakout and weekly closure above them another move to the downside is very likely – especially when we take into account the current position of the CCI and the Stochastic Oscillator (the latter generated the sell signal, while the first of them is very close to doing the same).
Connecting the dots, we think that another attempt to move lower is just around the corner and short positions continue to be justified from the risk/reward perspective.
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 positions (with a stop-loss order at $54 and the initial downside target at $46) 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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