Trading position (short-term; our opinion): Short positions (with a stop-loss order at $54.15 and the initial downside target at $45.55) are justified from the risk/reward perspective.
On Friday, crude oil lost 1.45% as U.S. President Donald Trump's decision to withdraw from an international climate agreement raised worries over further increase in domestic production. In this environment, light crude slipped under the Fibonacci retracement and closed the day below it. Will this event encourage oil bears to act?
Crude Oil’s Technical Picture
Let’s take a closer look at the charts and find out (charts courtesy of http://stockcharts.com).
On the above charts, we see that crude oil extended losses after the market’s open, which resulted in a decline to the 61.8% Fibonacci retracement. Although this support triggered a rebound, the black gold closed Friday’s session not only below the long-term green support line based on the August and November lows, but also under the previously-broken 50% retracement and previous lows.
Taking this fact into account and combining it with the sell signals generated by the indicators, we think that further declines are still ahead us. This scenario is also reinforced by the size of volume, which accompanied Friday’s drop – it was bigger than day earlier, which confirms oil bears’ strength.
How low could the commodity go?
In our opinion, if crude oil extends declines from Friday’s levels and breaks under the 61.8% Fibonacci retracement, the next target for oil bears will be around $45.40, where the previously-broken lower border of the red declining trend channel is.
Summing up, short (already profitable) positions continue to be justified from the risk/reward perspective as crude oil closed another day under the long-term green support line and the 50% Fibonacci retracement. Additionally, the sell signals generated by the indicators remain in place, which together with an increasing volume during declines suggest lower prices of the black gold 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 $54.15 and the initial downside target at $45.55) 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.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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