Trading position (short-term; our opinion): Short positions (with a stop-loss order at $56.45 and an initial downside target at $45.81) are justified from the risk/reward perspective.

On Thursday, crude oil moved sharply lower and closed the day below the 50-day moving average. Will this negative event trigger further deterioration?

Let’s examine the charts below to find out what can we infer from them (charts courtesy of http://stockcharts.com).

Looking at the weekly chart, we see that crude oil moved lower and reached the previously-broken long-term red rising support line. Although it could trigger a rebound (similarly to what we saw in the past), sell signals generated by the indicators suggest further deterioration and (at least) a test of the long-term green support line based on the February and November 2016 lows.

Are there any other factors that could encourage oil bears to act? Let’s take a closer look at the daily chart and find out.

Yesterday, we wrote the following:

(...) earlier today, crude oil futures extended losses and hit an intraday low of $53.30, which suggests that crude oil will follow them after the market’s open – similarly to what we saw in the previous days.

From today’s point of view, we see that the situation developed in line with the above scenario and crude oil slipped below our first downside target – the 50-day moving average. Such bearish development suggests further deterioration in the coming days – especially when we factor in the sell signals generated by the daily, weekly indicators and the size of volume that accompanied yesterday’s decline.

If this is the case, and the black gold extends losses the next downside target will be the lower border of the blue consolidation and the lower line of the black rising trend channel (around $51.62-$51.80).

Summing up, short positions continue to be justified as crude oil bulls declined under the 50-day moving average, which suggests another attempt to move lower in the coming days.

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

Trading position (short-term; our opinion): Short positions (with a stop-loss order at $56.45 and an initial downside target at $45.81) 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.

Thank you.

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

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