Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
Yesterday, oil bulls broke above the May 2015 high, but can we trust this breakout?
Although crude oil climbed above the May peak (a very bullish development) and closed the day above it, we didn’t see a continuation of the rally after today’s market’s open. This is definitely not a good symptom – especially when we consider yesterday’s API data.
As a reminder, the American Petroleum Institute’s report showed that crude inventories declined by 11.2 million barrels in the week ending January 5, almost tripling the projected decline of 3.9 million barrels! Such bullish news should result in a surge to at least the nearest resistance in the following hours.
And what happened with crude oil futures after the data and earlier in the pre-market trading? Absolutely nothing! We only noticed a tiny “breakout” above yesterday’s peak, which was invalidated very quickly in the following hours. What does it mean for crude oil? In our opinion, such a lack of reaction suggests that oil investors ceased to be guided by emotions and decided to wait to see if today's government report will answer to the most bothering question: whether production fell or exceeded 10 million barrels a day in the previous week?
In our opinion, the answer to this major question will be the key driver for the price in the coming week, therefore, we believe that our yesterday’s advice from the summary remains valid:
(…) until we see more reliable developments (bullish or bearish) waiting on the sidelines and watching bullish-bearish scuffles under the May 2015 high without open positions seems to be the best investment solution for the moment.
As always, we’ll 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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