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.
Last few days brought us a tepid move higher in oil. One would say, little wonder with all the Middle East tensions. Oil bulls haven't broken above the powerful resistances ahead and the volume examination reveals important clues about their strength. Let's get right into this something that no oil investor should miss.
Let's take a closer look at the chart below (chart courtesy of http://stockcharts.com).
The daily chart shows oil having climbed to its Monday's peak. The upper border of the blue consolidation and the red horizontal resistance line based on mid-April lows have been reached.
The significant upper knot of yesterday's candle shows that the bulls have given up half of their gains. This way, the earlier intraday breakout above the consolidation has been invalidated. It suggests another reversal followed by declines in the coming week.
If this is indeed the case and black gold moves lower from here, a test of the lower border of the consolidation can be expected as a minimum.
Before summarizing, there's one more aspect to mention. It's the volume. Looking at the current upswing, it's consistently dropping from one session to the other. This points to decreasing involvement of the buyers. In turn, that hints at the increasing odds of a move to the downside in the near future.
Summing up, the outlook for oil remains bearish. Oil is still trading inside the blue consolidation and below the previously-broken red horizontal line. There has been no breakout above either of these. The decreasing daily volume coupled with yesterday's significant upper knot points to decreasing willingness of the bulls to push prices higher. Besides, the position of the weekly indicators supports the downside move. The short position continues to be justified.
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
