Trading position (short-term; our opinion): Short positions (with a stop-loss order at $48.56 and initial downside target at $35.24) are justified from the risk/reward perspective.
On Thursday, crude oil extended gains as reduction in U.S. production and weakening U.S. dollar continued to support the price of the commodity. In this environment, light crude climbed slightly above $46. Where are oil bears?
Yesterday, the price of the commodity continued to react to Wednesday’s report, which showed that U.S. production declined by 15,000 barrels per day, hitting a fresh 18-month low and somewhat easing concerns over the supply glut. Additionally, preliminary data showed that U.S. gross domestic product rose 0.5% in the first quarter, disappointing expectations for a growth of 0.7%. On top of that, the number of initial jobless claims in the week ending April 23 decreased by 9,000, missing analysts’ forecasts. Thanks to these disappointing numbers, the U.S. dollar extended losses, making crude oil more attractive for buyers holding other currencies. As a result, light crude climbed slightly above $46. Where are oil bears? Let’s examine long- and medium-term charts and find out (charts courtesy of http://stockcharts.com).
From the medium-term perspective, we see that crude oil extended gains and almost touched the long-term black declining resistance line, which increases the probability of reversal in the coming week– especially when we factor in very high readings of the CCI and Stochastic Oscillator . As you see, we noticed such high values of these indicators before major reversals in Jun 2014 and May 2015, which suggests that another one is just around the corner.
Are there any other factors that could encourage oil bears to act? Let’s examine the monthly chart and find out.
On the long-term chart, we see that the recent upward move approached crude oil to the first Fibonacci retracement level based on the entire Apr 2011-Feb 2016 downward move (around $47). Additionally, slightly above this resistance level is also red resistance zone (created by the Jan, Feb, March, Apr, Jul, Aug, Oct and Nov 2015 monthly opening and closing prices), which could stop oil bulls in the coming week.
Summing up, although crude oil hit a fresh high, the commodity approached very important resistance zone based on the long- and medium-term resistance levels, which suggests that even if light crude moves higher once again later today (even to around $47), reversal in the coming week is very likely.
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 $48.56 and initial downside target at $35.24) are justified from the risk/reward perspective. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
As a reminder – “initial target price” means exactly that – an “initial” one, it’s not a price level at which we suggest closing positions. If this becomes the case (like it did in the previous trade) we will refer to these levels as levels of exit orders (exactly as we’ve done previously). Stop-loss levels, however, are naturally not “initial”, but something that, in our opinion, might be entered as an order.
Since it is impossible to synchronize target prices and stop-loss levels for all the ETFs and ETNs with the main market that we provide this level for (crude oil), the stop-loss level and target price for popular ETN and ETF (among other: USO, DWTI, UWTI) are provided as supplementary, and not as “final”. This means that if a stop-loss or a target level is reached for any of the “additional instruments” (DWTI for instance), but not for the “main instrument” (crude oil in this case), we will view positions in both crude oil and DWTI as still open and the stop-loss for DWTI would have to be moved lower. On the other hand, if crude oil moves to a stop-loss level but DWTI doesn’t, then we will view both positions (in crude oil and DWTI) as closed. In other words, since it’s not possible to be 100% certain that each related instrument moves to a given level when the underlying instrument does, we can’t provide levels that would be binding. The levels that we do provide are our best estimate of the levels that will correspond to the levels in the underlying assets, but it will be the underlying assets that one will need to focus on regarding the sings pointing to closing a given position or keeping it open. We might adjust the levels in the “additional instruments” without adjusting the levels in the “main instruments”, which will simply mean that we have improved our estimation of these levels, not that we changed our outlook on the markets.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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