Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.

Wednesday’s session didn’t dispel doubts about the direction of the next bigger move in crude oil, however, the price action that we noticed on the oil-to-gold ratio chart suggests caution to oil bear fans.

Let’s take a look at the daily charts below (charts courtesy of http://stockcharts.com).

Yesterday, after the market’s open, black gold moved a bit lower, but oil bulls didn’t give up without a fight. Their determination resulted in a rebound and a comeback above the mid-January highs (in terms of daily opening and closing prices).

Additionally, the oil-gold ratio created one more positive sign, which could encourage oil bulls to act in the coming day(s). Let’s take a look at the daily chart below.

From today’s point of view, we see that although the oil-to-gold ratio declined in recent days, the lower border of the blue rising trend channel stopped declines, triggering a rebound. Thanks to this price action, the ratio invalidated the tiny breakdown under this support line, which suggests further improvement.

What does it mean for crude oil? Taking into account the positive correlation between the ratio and the price of black gold, we think that further improvement in the ratio will encourage oil bulls to act and translate into (at least) one more upswing in crude oil in the coming days.

As always, we’ll keep you - our subscribers - informed should anything change, or should we see a confirmation/invalidation of the above.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager

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