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

On Tuesday, crude oil moved higher supported by news that Libya will take part in the meeting of OPEC and non-OPEC producers in Russia later this month. As a result, light crude gained 1.24% and re-tested the strength of the nearest resistances. Will they stop oil bulls in the coming days?

Crude Oil’s Technical Picture

Let’s take a closer look at the charts and find out (charts courtesy of http://stockcharts.com).

Looking at the daily chart, we see that light crude moved higher once again and re-tested the 50-day moving average. Despite this improvement, the commodity pulled back and closed the day under this resistance and the 50% Fibonacci retracement.

This is a repeat of what we already saw earlier this month, which means that we wrote in our Friday’s Oil Trading Alert is up-to-date also today:

What’s next for Light Crude?

(…) this resistance [the 50-day moving average] together with the 50% Fibonacci retracement, successfully stopped oil bulls at the beginning of the month, which suggests that we may see a similar price action in the coming days. Additionally, the size of volume during recent increases is getting smaller, which doesn’t confirm oil bulls’ strength and suggests that they may be out of power in the near future. Nevertheless, taking into account the buy signal generated by the daily indicators, we think that the commodity could test the July high before the next move to the downside.

(…) let’s take a closer look at the oil-to-gold ratio.

(...) although crude oil moved higher, the ratio didn’t follow this increase and remains in the consolidation under the upper border of the red declining trend channel. Such price action suggests that oil bulls may not be as strong as it seems at the first sight and increases the probability of reversal in near future.

What does it mean for the price of crude oil? Taking into account the fact that positive correlation between the ratio and the commodity is still in cards, we believe that declines in the ratio will likely translate into lower prices of crude oil in the coming week(s) – similarly to what we saw in the past.

Summing up, crude oil moved a bit higher once again, but the 50-day moving average and the 50% Fibonacci retracement continue to keep gains in check. Taking this fact into account and combining it with the current situation in the oil-to-gold ratio, we think that another bigger move to the downside is just around the corner.

Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: mixed

Trading position (short-term; our opinion): No positions 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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