Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
On Wednesday, crude oil lost 3.38% after bearish EIA weekly supply report. As a result, the commodity declined sharply and reached the key support line once again. Will it withstand the selling pressure in the coming days?
Yesterday, the U.S. Energy Information Administration reported that U.S. crude oil inventories increased by 2.6 million barrels in the week ended August 14, missing analysts' expectations for another drop. On top of that, supplies at Cushing, Oklahoma, rose by 326,000 barrels last week. Although the report also showed that gasoline inventories decreased by 2.7 million barrels, distillate stockpiles rose by 0.6 million barrels. Thanks to these bearish numbers, light crude reversed and declined sharply, hitting a fresh multi-month low. Are there any technical factors that could encourage oil bulls to act? Let’s examine the daily chart and find out (charts courtesy of http://stockcharts.com).
Yesterday, we wrote the following:
(…) in our opinion, as long as there is no invalidation of the breakdown under green and blue lines, higher prices of the commodity are questionable and another test of the red declining support line (currently around $41.16) can’t be ruled out.
Looking at the above chart, we see that the first think that catches the eye is another unsuccessful attempt to break above the key resistance zone created by the green and blue lines. As a result, light crude reversed and declined sharply, slipping under the March low and hitting a fresh multi-month low of $40.81. With this downswing, the commodity declined to its key support – the red declining line and closed the day on it. Additionally, the size of volume that accompanied yesterday’s decline was significant, which suggests that another test of the red support line is more likely than not.
This means that what we wrote last Friday is still up-to-date:
(...) Please consider the way crude oil declined in January 2015. Black gold declined sharply at first, but the final days (and weeks) of the decline were not sharp – crude oil declined slowly and the thing that was indeed sharp, was the corrective upswing that we saw in the final part of the month. We wouldn’t want to be holding short positions should something like that happened once again and the risk of such action is not negligible.
Nevertheless, if the commodity closes the week below the March low or declines below the key support line on sizable volume, we’ll consider re-entering short positions. Until this time, in our opinion, the risk is too high.
Summing up, crude oil moved lower once again, but the commodity remains above its key support line. Therefore, in our opinion, as long as there is no confirmed breakdown (on sizable volume) below the red declining support line (or a weekly close under the March low) the outlook for crude oil is not bearish enough to justify opening another short positions. We will continue to monitor the market, look for another profitable trading opportunity and report to you accordingly.
Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed with bearish bias
LT outlook: mixed with bearish bias
Trading position (short-term; our opinion): No positions 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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