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.
Although crude oil extended gains and hit a fresh 2016 high, the long-term resistance zone continues to keep gains in check. Will it withstand the buying pressure in the coming week?
Let’s examine charts below and try to answer this question (charts courtesy of http://stockcharts.com).
On the long-term chart, we see that the first Fibonacci retracement level in combination with the red resistance zone continues to keep gains in check.
How did yesterday’s increase affect the very short-term picture? Let’s examine the daily chart and find out.
From today’s point of view, we see (based only on the above charts) that crude oil extended gains once again and climbed to a fresh 2016 high. Despite this improvement, light crude remains under the red resistance zone created by the Nov 2015 highs and the black rising resistance line based on the previous highs. Additionally, the size of volume was not only tiny, but also smaller than day earlier, which increases doubts about the reliability of this week’s increase and suggests that lower prices are just around the corner – especially when we factor in the situation in the long term.
Summing up, although crude oil climbed to a fresh high, the commodity remains under the red resistance zones, which in combination with the size of volume that accompanied recent increases suggests that reversal in the coming days 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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