Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
On Wednesday, crude oil extended losses as disappointing EIA weekly report affected negatively the price of the commodity. As a result, light crude lost almost 3% and slipped under the short-term support line. How low could crude oil go in the coming day(s)?
Although the U.S. Energy Information Administration showed that crude oil inventories dropped by 0.559 million barrels in the week ended September 9 (beating analysts’ forecasts), the report also showed that gasoline inventories increased by 0.567 million barrels (compared to expectations for a gain of 0.343 million barrels), while distillate stockpiles rose by 4.617 million barrels, also missing forecasts. Thanks to these disappointing numbers, light crude extended losses and slipped under the short-term support line. How low could crude oil go in the coming day(s)? Let’s check the very short-term picture of the commodity and find out (charts courtesy of http://stockcharts.com).
Yesterday, we wrote the following:
(…) the black dashed resistance line based on the previous highs stopped oil bulls. This show of weakness triggered a decline on the following day, which erased almost all Monday’s gains. With yesterday’s drop light crude slipped under the previously-broken 50-day moving average and closed the day below it, invalidating earlier breakout. Such price action doesn’t bode well for the commodity and suggests further deterioration.
On top of that, the Stochastic Oscillator generated a sell signal, giving oil bears another reason to act. Taking all the above into account, we think that crude oil will extend declines and (at least) test the upper border of the black declining trend channel (currently around $44.05) in the coming day.
From today’s point of view, we see that oil bears pushed the commodity lower as we had expected. With yesterday’s move crude oil not only slipped to our first downside target, but also closed the day below it, invalidating earlier breakout. This is a negative sign – especially when we take into account the fact that yesterday’s decline materialized on sizable volume (higher than day earlier), which confirms oil bears’ strength. Additionally, the sell signal generated by the Stochastic Oscillator continues to support further declines, which means that what we wrote in our previous alert is up-to-date:
(…) we think that crude oil will extend declines and (at least) test the upper border of the black declining trend channel (currently around $44.05) in the coming day. However, if this support is broken (which is quite likely when we consider the late Aug downward move), we’ll see a test of the Sep low of $43 and a re-test of the green support zone.
Summing up, crude oil extended declines and invalidated earlier breakout above the upper border of the black declining trend channel, which in combination with the sell signal and sizable volume that accompanied yesterday’s decline suggests further deterioration and a drop to the Sep low of $43 and the green support zone in the coming days.
Very short-term outlook: bearish
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed
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, Gold & Silver Fund Manager
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