Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
On Thursday, crude oil gained 3.84% as weaker greenback supported the price. In this way, the commodity rebounded and came back above $50. Will it be a sustainable return?
Yesterday, the U.S. Commerce Department showed that retail sales dropped by 0.8% in Jan (missing expectations for a decline of 0.5%), while core retail sales (without automobile sales) decreased by 0.9% in December, disappointing forecasts for a 0.4% drop. On top of that, the U.S. Department of Labor reported that the number of initial jobless claims in the week ending February 7 increased by 25,000 missing analysts’ expectations for a 6,000 increase. In response to these disappointing numbers, the U.S. dollar moved lower, making crude oil cheaper for holders of other currencies. As a result, the commodity extended gains and hit an intraday high of $51.60. Will we see further improvement in the coming days? (charts courtesy of http://stockcharts.com).
In our previous Oil Trading Alert, we wote the following:
(…) yesterday’s downswing took the commodity to the support zone (marked with green) created by the Apr 2009 lows. Taking this fact into account, and combining it with the proximity to the 61.8% Fibonacci retracement (based on the Jan-Feb decline at $47.65) and the bottom of the previous bigger pullback (the Feb 5 low), it seems to us that we could see some strength in the coming session(s). If this is the case, the initial upside target for oil bulls would be around $51.40, where the previously-broken 78.6% (seen on the weekly chart) and the 50% (marked on the daily chart) Fibonacci retracement levels are.
Looking at the charts, we see that currency bulls pushed the commodity higher as we expected and crude oil climbed to our upside target. As you see on the daily chart, yesterday’s move materialized on sizable volume, which is a positive signal that suggests further improvement and another test of the key resistance red zone around $53.13-$54.24 created by the previously-broken 76.4% and 78.6% Fibonacci retracement levels (marked on the weekly chart), the 61.8% retracement (based on the Dec-Jan decline and seen on the daily chart), the 50-day moving average and the recent highs. Consequently, we believe that as long as the commodity is trading below it, further improvement is questionable and another pullback (in the coming days) can’t be ruled out.
Summing up,crude oil reversed and increased on sizable volume, which suggests further improvement and another test of the key resistance red zone around $53.13-$54.24 in the coming session. Nevertheless, long as the commodity is trading below it further rally is not likely to be seen.
Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bullish
Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective. Nevertheless, if we see a daily close above the 61.8% Fibonacci retracement based on the Dec-Jan decline, we’ll consider opening long positions. We will keep you informed should anything change.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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