Trading position (short-term; our opinion): No position is justified from the risk/reward perspective.
In Thursday's Alert, we mentioned the struggles the bulls had with the first important Fibonacci retracement, and the importance of who wins the battle in this area. Friday's session showed that the buyers didn't give up as they reached another important resistance area before the closing bell.
Can today's session give us any tips as to the direction of further movement? Let's analyze the chart below (chart courtesy of www.stooq.com).
Crude oil futures opened today with a tiny gap. Despite this positive development, the orange gap encouraged the sellers to act, which translated into a pullback. However, this deterioration didn't last long and the bulls returned, pushing the futures above Friday's closing prices.
While this is a positive development, let's keep in mind that as long as the gap remains open, a bigger move to the upside is not likely to be seen - especially when we factor in the proximity to the 50% Fibonacci retracement, the upper border of the very short-term rising blue trend channel and the overbought position of both the CCI and the Stochastic Oscillator. They're very close to generating their sell signals.
Therefore, even if the bulls retest the above-mentioned resistances, we will stay at the sidelines, waiting for more clear signs to emerge. These could include a bearish candlestick or an invalidation of the breakout above the blue channel for example. Nevertheless, should we see reliable signs of the buyers' weakness, we'll likely open short positions - this is a matter of very short time actually. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
Summing up, crude oil futures extended gains and reached the strong resistance area, which could stop the bulls in the very near future. Therefore, in our opinion, a reversal and lower values of the futures are just around the corner.
Trading position (short-term; our opinion): No position is justified from the risk/reward perspective.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
