Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
The price of crude oil soared tremendously today after OPEC announced its first oil output cut since 2008 (to 32.5 million barrels per day from the current level of 33.6 million). Does this huge one-day rally mark the end of the previous declines? Let’s take a look at the chart (charts courtesy of http://stockcharts.com).
In short, it’s too early to say. The price of crude oil moved back to the previous November high, without breaking it. In order for the price move alone to be really bullish, we like to see not only a breakout, but a confirmed breakout. Why is this significant? The example is visible right on the above chart. Please take a look at what’s been going on from the second half of May to the end of June. Crude oil either moved to new highs only to disappoint and plunge back below them shortly or it didn’t move above the previous highs at all. Ultimately, the big move that followed, was a decline, not a rally.
Crude oil rallied over $3 so far and many investors and traders are crazy about it. Let’s keep in mind that the point of technical analysis is to take advantage of market’s emotionality – not to follow it. Consequently, even though crude oil moved higher today, it seems that viewing the rally as a strong bearish signal and acting would be premature at this time. We will keep monitoring the market for confirmations of invalidations of the move and we will report to you accordingly. In other words, we’ll let you know when the risk to reward ratio appears favorable for the next trade (a one likely to increase the profits that we made on the previous ones).
Very short-term outlook: mixed
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.
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, Gold & Silver Fund Manager
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