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.

Earlier today, the U.S. Energy Information Administration reported that U.S. crude oil inventories fell by 237,000 barrels in the week ended March 10, but is it enough to stop oil bears?

Let’s examine the charts below to find out (charts courtesy of http://stockcharts.com).

Looking at the weekly chart, we see that crude oil extended losses and dropped under the 50-week moving average, which is a bearish development. Additionally, the sell signals generated by the indicators are still in play, suggesting further deterioration.

Will the very short-term picture confirm this pro bearish scenario? Let’s check.

On Monday, we wrote the following:

(…) If (…) crude oil extends losses, the next downside target will be around $47 (the 61.8% Fibonacci retracement) or even (…) the medium-term green support line based on the August and November lows (…)

From today’s point of view, we see that the situation developed in line with the above scenario and crude oil declined to the 61.8% Fibonacci retracement. This important support triggered a rebound earlier today, but despite this move the commodity is still trading below the barrier of $50, the 200-day moving average and there are no buy signals, which suggests that another downswing may be just around the corner – especially when we factor in the medium-term picture and increase in yesterday’s volume. If this is the case and light crude extends losses, we’ll see a test of the medium-term green support line based on the August and November lows (currently around $46.11).

Summing up, short (profitable) positions continue to be justified as crude oil remains under the barrier of $50, the 50-week moving average and the previously-broken green resistance line based on February and November lows.

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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