Trading position (short-term; our opinion): Long positions (with a stop-loss order at $42.95 and initial upside target at $50) are currently justified from the risk/reward perspective.

On Tuesday, crude oil gave up the gains after Saudi Energy Minister told that he does not expect that OPEC producers would find a compromise. This comment disappointed market participants and pushed the price of the commodity to the key short-term levels once again. Another verification of earlier breakouts?

Let’s focus on the charts and find out (charts courtesy of http://stockcharts.com).

Yesterday, we wrote the following:

(…) we would like to draw your attention to the size of volume that accompanied yesterday’s session. As you see it was quite tiny (compared to what we saw on Friday), which suggests that we may see a re-test of the (…) support zone (created by the black dashed line based on the Aug highs, the 50-day moving average and the black rising support line based on the Feb and Aug lows) before light crude climb higher.

From today’s point of view, we see that the situation developed in tune with yesterday’s scenario and crude oil slipped to the above-mentioned support zone. What’s next? When we take a look at the daily chart, we see that there was almost identical situation on Friday. However, back then, the size of volume was bigger that yesterday, which suggests that oil bears may weaken. Additionally, Tuesday’s downswing stopped slightly above the black dashed line based on the Aug highs, the 50-day moving average and the black rising support line based on the Feb and Aug lows, which looks like a verification of earlier breakouts.

If this is the case, we’ll likely see another reversal and an increase similar to Monday’s move in the coming day(s). Consequently, the initial upside target would be the red resistance zone around $47.75-$48.46, but if it is broken, we may see a test of the barrier of $50 in the coming week.

Summing up, crude oil declined and very likely verified earlier breakouts above the black dashed line (based on the Aug highs), the 50-day moving average and the black rising support line based on the Feb and Aug lows once again, which suggests another reversal and rebound in very near future.

Very short-term outlook: bullish
Short-term outlook: mixed with bullish bias
MT outlook: mixed
LT outlook: mixed

Trading position (short-term; our opinion): Long positions (with a stop-loss order at $42.95 and initial upside target at $50) are currently 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.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager

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