Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective.
Crude oil moved lower after the market’s open weakened by a stronger greenback, but the commodity reversed and rebound in the following hours. Despite this move, light crude closed the day below $60. Will short-term support levels hold in the coming week?
On Friday, the University of Michigan reported that its consumer sentiment index climbed to a five-month high of 96.1 in June, beating analysts’ expectations for an unchanged reading. On top of that, the university also showed that its inflation expectations for the next 12 months remained unchanged. Thanks to these solid numbers, the USD Index moved higher, making crude oil less attractive for buyers holding other currencies. As a result, light crude hit an intraday low of $58.76. Despite this drop, light crude reversed and climbed above $60. Where the commodity head next in the coming week? (charts courtesy of http://stockcharts.com).
From the long-term persepctive, we see that this year’s rally is simply a sizable correction of the previous massive decline. Taking into acount the fact that there was no major breakout and the trend remains down, it seems that the short-term outlook would deteriorate, as crude oil didn’t move above the long-term rising resistance line and the 200-month moving average.
Are there any short-term factors that could encourage oil bears to act? Let’s examine the daily chart and find out.
Looking at the daily chart we see that crude oil slipped below the 50-day moving average, but the short-term green support line triggered a rebound, which invalidated earlier breakdown. Although this is a positive signal that suggests further improvement, we should keep in mind that sell signals generated by the indicators remain in place, supporting the bearish case.
Therefore, taking this fact into account, and combining it with the long-term picture, we believe that further deterioration is just around the corner. Nevertheless, in our opinion, another bigger downward move will be more likely if we see a daily close below the 50-day moving average ($59.28) and the green support line (currently around $58.50).
In this case, the next target for oil bears would be the blue support zone ($56.50-$57.60) or the green support line (around $56.10).
Summing up, although crude oil is trading in the consolidation, the outlook for crude oil remains bearish as major resistance area continues to keep gains in check. If we see a daily close below the 50-day moving average, the outlook will deteriorate even further, which should translate to acceleration of the decline. As always, we’ll keep you – our subscribers – updated.
Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: mixed with bearish bias
LT outlook: mixed with bearish bias
Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective. We will keep you – our subscribers – informed should anything change.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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