Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
Tuesday’s session took crude oil to the major resistance zone, which remains unbeatable since the beginning of the year. Did the bulls finally gather enough strength to push the price of the commodity above it?
Technical Analysis of Crude Oil
Let's examine the charts below (charts courtesy of http://stockcharts.com).
Although, crude oil opened yesterday’s session under the red declining dashed line based on the January and February peaks, oil bulls took control very quickly and extended Monday’s rebound. As a result, black gold climbed to the red resistance zone created by the January, February and March peaks and reinforced by the 200-month moving average seen on the long-term chart.
What’s next? On one hand, the above-mentioned resistance zone continues to keep gains in check since the beginning of the year and we could find out how well it works in the previous month.
On the other hand, yesterday’s move materialized on significant volume, which in combination with the buy signal generated by the Stochastic Oscillator suggests further improvement.
Taking all the above into account, we think that as long as there is no breakout above the red zone long positions are not justified from the risk/reward perspective. Nevertheless, if we see such price action, we’ll likely open them after a verification of the breakout.
And what about the possibility of another unsuccessful attempt to move higher? If we see any reliable signs of oil bulls’ weakness in this area, we’ll consider going short. Nevertheless, the recent price action shows that as long as crude oil remains inside the green rising trend channel another bigger move to the downside is not likely to be seen.
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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