Trading position (short-term; our opinion): Short position with a stop-loss order at $68.54 and the initial downside target at $58.71 is justified from the risk/reward perspective.
We've raised some doubts about the bulls' power to succeed yesterday. Indeed, they gave up most of their gains before the closing bell. Today, we haven't seen even an upswing attempt that would fizzle out. So, is it a case closed? Given all the breaking oil news and data, what do the charts really reveal about oil going forward?
Let's take a closer look at the chart below (chart courtesy of http://stockcharts.com).
The daily chart shows that crude oil remains below the previously-broken lower border of the red rising wedge. Yesterday's upswing was bullish only at first sight and anyway, the bulls gave up most of their gains before the session was over. Our yesterday's reservations about the bulls' power (as expressed in the Alert's title) were justified.
Reminding you of our yesterday's words:
(...) Nevertheless, before we see such price action, an attempt to move higher and a verification of the breakdown below the rising red wedge should not surprise us.
The situation developed in tune with expectations. Earlier today, we've seen a tentative move lower and black gold currently trades at around $63.55. Even that is lower than yesterday's closing price.
The daily indicators continue to support the bears. Also the volume of yesterday's upswing was markedly lower than the volume of the preceding downswing. This is a clue doubting the commitment and strength of the bulls. And this is the second clue in a row as Monday's volume has also been much lower.
Let's discuss the targets of this oil downswing. What we wrote on Monday remains up-to-date also today:
(...) Taking into account the shape of the current decline, black gold could move even lower than the first green support zone. It could visit the second green support zone because there the size of the decline would correspond to the height of the wedge that the oil price has broken down from.
Summing up, the outlook remains bearish. We've just seen a verification of the breakdown below the rising red wedge. The volume of yesterday's modest upswing was much lower than that of the preceding downswing and most of the gains evaporated before the session was over. The daily indicators remain on sell signals. The bearish divergences are in place and the short position continues to be justified. Finally, today's price action doesn't have a whiff of bullish air.
Trading position (short-term; our opinion): Short position with a stop-loss order at $68.54 and the initial downside target at $58.71 is justified from the risk/reward perspective.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
