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 Wednesday, crude oil gained 2.39% after a better-than-expected Energy Information Administration report, which showed that crude oil and fuel inventories declined. In this environment, light crude came back above the 200-day moving average and closed the day above it. Does it mean that declines are over?

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

Looking at the weekly chart, we see that although crude oil climbed above the 50-week moving average, invalidating the earlier breakdown, the sell signals generated by the indicators are still in play, suggesting further deterioration. Additionally, we should keep in mind that the week is not over yet, which means that another downswing and drop below the 50-week moving average is likely.

Will we see such price action? Let’s examine the very short-term picture and try to find out.

Looking at the daily chart, we see that the 61.8% Fibonacci retracement encouraged oil bulls to act, which resulted in a rebound and a comeback above the 200-day moving average. Taking this fact into account and the buy signals generated by the RSI and the Stochastic Oscillator, it seems that crude oil could move higher and test the 38.2% Fibonacci retracement based on the March downward move or even the barrier of $50 in the coming day(s).

Nevertheless, in our opinion, as long as there is no invalidation of the breakdown under the level of $50, another attempt to move lower and a drop to the medium-term green support line based on the August and November lows (currently around $46.11) is likely.

Summing up, short (profitable) positions continue to be justified as crude oil remains under the barrier of $50 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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