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 lost 0.71% and closed the day below $48. How low could the black gold go in the coming week?

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

Looking at the charts, we see that although crude oil moved a bit higher after the market’s open, the proximity to the previously-broken 200-day moving average encouraged oil bears to act, which resulted in a reversal and decline. As a result, light crude extended losses (making our short positions more profitable) and closed the day under $48.

Additionally, the sell signals generated by the weekly indicators and the daily Stochastic Oscillator are in play, supporting oil bears and suggesting further deterioration. If this is the case and light crude drops from current levels, we’ll see not only a test of the recent lows, but also a test of the next downside target - the medium-term green support line based on the August and November lows (currently around $46.35).

Summing up, short (profitable) positions continue to be justified as crude oil remains under the 200-day and 50-week moving averages and the sell signals generated by the indicators are still in play, which suggests another attempt to move lower.

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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