Trading position (short-term; our opinion): Short positions with a stop-loss order at $54.12 and initial (!) target price at $35.72 are justified from the risk/reward perspective.
On Thursday, crude oil lost 3.41% as a bigger-than-expected build in light crude inventories weighed on the price and pushed the commodity to its lowest level since late-August. As a result, crude oil dropped under $42 and hit a fresh multi-month low of $41.54. Where will the commodity head next?
Yesterday, the U.S. Energy Information Administration reported that crude oil inventories increased by 4.2 million barrels for the week ending November 6. Although the report showed that gasoline inventories decreased by 2.1 million barrels, distillate fuel inventories increased by 0.4 million last week. Thanks to these numbers, crude oil declined below the late-August low and hit a fresh multi-month low of $41.54. Where will the commodity head next? Let’s examine charts and find out (charts courtesy of http://stockcharts.com).
Looking at the weekly chart, we see that the commodity extended losses below the blue support zone and the blue support line, which is a negative signal (which will be more bearish if we see a weekly close below this area) that suggests further deterioration in the coming week.
What impact did this move have on the daily chart? Let’s check.
Quoting our previous Oil Trading Alert:
(…) crude oil dropped under the key blue support zone (reinforced by the blue support line), approaching the Oct low. What’s next? (…) this time, the position of the indicators supports oil bears (sell signals remain in place). Additionally, the size of volume that accompanied yesterday’s decline was significant, which confirms the downward trend.
As you see on the daily chart, oil bears pushed the commodity below the Aug low (on increasing sizable volume), which means that what we wrote on Monday is up-to-date also today:
(…) we believe that a successful breakdown under the key support area will accelerate declines and we’ll see a drop to (at least) $40.57-$40.86, where the next support area (created by the 76.4% and 78.6% Fibonacci retracement levels) is.
Finishing today’s alert please note that the bearish scenario will be more reliable if crude oil closes this week under the blue area (which is very likely from todays point of view).
Summing up, crude oil extended losses and dropped under the late-Aug low. This is a bearish signal, which suggests that further deterioration in the coming day(s) is more likely than not and short positions (which are already profitable as we opened them when crude oil was trading around $46.69) continue to be justified from the risk/reward point of view.
Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: bearish
LT outlook: mixed with bearish bias
Trading position (short-term; our opinion): Short positions with a stop-loss order at $54.12 and initial (!) target price at $35.72 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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