Trading position (short-term; our opinion): Short positions (150% of the regular size of the position) with the stop-loss order at $68.15 and the initial downside target at $58.10 are justified from the risk/reward perspective.
The title of today's alert is the shortest summary of yesterday's session. At the first glance, oil bears lost the battle around the above-mentioned support, but is it really worth to trust this first impression?
Technical Analysis of Crude Oil
Let's take a look at the charts (charts courtesy of http://stockcharts.com).
Yesterday, we wrote the following:
(…) Thanks to Monday’s price action, light crude moved sharply lower, breaking below the last week’s lows and slipped to the 50-day moving average. Although we can see some rebound from here, the sell signals generated by the indicators remain in the cards, supporting oil bears and lower prices – just like the volume, which increased during yesterday’s decline.
From today’s point of view, we see that the situation developed in tune with the above-mentioned scenario and light crude moved a bit higher on Tuesday.
Did this increase change anything in the short-term outlook?
5 Reasons for Further Declines
In our opinion, it didn’t and there are five reasons, which confirm this assumption:
- First, the size of rebound was tiny compared to what we saw on Monday.
- Second, yesterday’s upswing materialized on smaller volume than the earlier declines, which doesn’t confirm oil bulls’ strength or the credibility of a potential reversal.
- Third, the sell signals generated by the indicators continue to support the bears.
- Four, crude oil is still trading inside the blue consolidation seen on the weekly chart, which means that an invalidation of the earlier tiny above the upper border of the blue consolidation and its negative impact on the price remain in effect, suggesting further deterioration and a test of the lower line of the formation in the coming week(s).
- Five, black gold remains under the major resistance – the 200-month moving average, which continues to keep gains in check since the beginning of the year.
Connecting the dots, we believe that all these factors will encourage oil bears to push crude oil lower in the coming day(s) – especially when we factor in the fact that Russia pumped 10.97 million barrels per day of crude oi in the previous month (up from 10.95 million bpd in February), hitting an 11-month high - despite the production cut agreement with the OPEC.
Where Will Light Crude Head Next?
We believe that the best answer to this question will be the quote form our last alert:
(…) if light crude drops under the blue moving average, we’ll see (at least) a test of the support area created by the March lows and the barrier of $60. However, when we take into account the zigzag pattern seen on the above chart, the next downside target for oil bears will be the green support zone based on the February lows and the lower border of the medium-term blue rising trend channel around $58.20 (if you want to know more about the above-mentioned big zigzag and Elliott wave theory, we encourage you to read our Oil Trading Alert posted on March 27, 2018).
Summing up, short positions continue to be justified from the risk/reward perspective as the size of yesterday’s move was tiny compared to what we saw on Monday and all pro-bearish factors remain in the cards, supporting the sellers and increasing the probability of further declines and a test of the green support zone, where our initial downside target is.
Trading position (short-term; our opinion): Short positions (150% of the regular size of the position) with the stop-loss order at $68.15 and the initial downside target at $58.10 are justified from the risk/reward perspective. 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
Gold & Silver Trading Alerts
Forex Trading Alerts
Oil Investment Updates
Oil Trading Alerts