Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
On Tuesday, crude oil lost 2.52% as negotiations with Iran on its nuclear program continued o weigh on investors’ sentiment. As a result, light crude dropped below the resistance area and reached the 50% Fibonacci retracement. Will we see further deterioration in the coming days?
Yesterday, crude oil extended losses as worries related to the talks between Iran and six world powers continued to weigh. Investors’ sentiment deteriorated further after White House press secretary Josh Earnest said the United States is not opposed to continue talks with Iran as long as they are productive. Additionally, Russian Foreign Minister Sergei Lavrov told that he believed the talks had a good chance of success.
On top of that, news that OPEC increased supply in March by 560,000 bpd, to its highest level since October (as Iraq's exports rebounded after bad weather and Saudi Arabia pumped at close to record rates) watered down the price of the commodity as well. In this environment, light crude hit an intraday low of $47.28 and closed another day under important resistance levels. What’s next? (charts courtesy of http://stockcharts.com).
Looking at the above chart, we see that the upper line of the declining trend channel triggered further deterioration and deepened Monday’s pullback. This shows that as long as this resistance is in play another attempt to break above the red resistance zone created by the 76.4% and 78.6% Fibonacci retracement levels is impossible.
Having said that, let’s examine the daily chart and find out what we can infer from it.
As you see on the above chart, the combination of the previously-broken 38.2% Fibonacci retracement (based on the entire recent rally) and the 50-day moving average triggered a pullback, which erased all Monday’s gains and took the commodity to the next Fibonacci retracement. Taking this support into account, we could see a rebound from here in the coming day. Nevertheless, we should keep in mind that the space for further gains is limited as the resistance zone created by the above-mentioned levels and the red declining line is quite close (currently around $48.70-$49.70).
In our opinion, as long as there is no comeback above these area further improvement is not likely to be seen and another attempt to move lower is likely (please note that his scenario is currently reinforced by the medium-term picture and a sell signal generated by the Stochastic Oscillator).
If this is the case, and the commodity drops under the 50% Fibonacci retracement, the next target for oil bears would be $46.26 (the 61.8% Fibonacci retracement) or even around $44.56-$44.78, where the 74.6% and 78.6% Fibonacci retracements are.
Before we summarize today’s alert please keep in mind the quote from Monday’s alert:
When can we expect an improvement in the very short term? In our opinion, further increases will be likely only if we see an invalidation of the breakdown below the above-mentioned resistance line. Nevertheless, it seems to us that a sizable (and profitable) upward move will appear after a breakout above the Feb highs.
Summing up, crude oil reversed and erased all Monday’s gains, declining to the 50% Fibonacci retracement. Although we could see a small rebound from here to around $48.70-$49.70, we believe that as long as there is no comeback above the resistance zone created by the 50-day moving average and the red declining line further improvement is not likely to be seen and another attempt to move lower is likely.
Very short-term outlook: mixed with bearish bias
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 at the moment, but 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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