Trading position (short-term; our opinion): Long positions (with a stop-loss order at $41.39 and initial upside target at $49.53) are currently justified from the risk/reward perspective.
On Tuesday, crude oil moved little lower after news that Iran, Iraq and Indonesia had expressed reservations about their level of participation in the OPEC’s cut deal. As a result, light crude gave up earlier gains and slipped to the previously-broken levels. Will we see further deterioration?
Let’s take a closer look at the daily chart (charts courtesy of http://stockcharts.com).
Quoting our yesterday’s alert:
(…) the commodity broke above the last week’s high and the 50-day moving average, reaching the 61.8% Fibonacci retracement (based on the Oct-Nov decline). Although this resistance level could trigger a pullback, crude oil futures moved higher and climbed to $49 earlier today, which suggests that another attempt to move higher after the market’s open is very likely – especially when we factor in yesterday’s breakouts and buy signals generated by the daily indicators.
From today’s point of view, we see that the situation developed in line with the above scenario and crude oil reached the first of our Friday’s upside targets - the previously-broken red line based on the Aug and Sep lows. As you see, this resistance triggered a pullback, which took light crude to the 50-day moving average. However, after this drop, the black gold rebounded, which looks like a verification of earlier breakout. At this point, it is also worth noting that slightly below yesterday’s low is also the green line based on recent lows, which serves as an additional support. Therefore, in our opinion, as long as there is no breakdown under this line and buy signals remain in place, another attempt to move higher (and at least a re-test of the red line) is likely.
Summing up, although crude oil declined after an increase to our initial upside target (the red line based on the Aug and Sep lows), the 50-day moving average and the green support line based on recent lows encouraged oil bulls to act, which resulted in a rebound. Today, the situation hasn’t changed much as the commodity is trading around $48, which suggests that yesterday’s decline could be a verification of earlier breakout above the 50-day moving average and higher prices of light crude are still ahead us.
Very short-term outlook: bullish
Short-term outlook: bullish
MT outlook: bullish
LT outlook: mixed
Trading position (short-term; our opinion): Long positions (with a stop-loss order at $41.39 and initial upside target at $49.53) 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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