Trading position (short-term; our opinion): Short positions (with a stop-loss order at $54.15 and the next downside target at $43.08) are justified from the risk/reward perspective.

On Wednesday, crude oil moved sharply lower after the EIA weekly report showed an unexpected large build in gasoline inventories. As a result, light crude lost 3.72% and dropped under important support. Will these negative factors push the black gold lower in the coming days?

Crude Oil’s Technical Picture

Let’s take a closer look at the charts and find out (charts courtesy of http://stockcharts.com).

On Monday, we wrote the following:

(…) crude oil (…) closed another day above the lower border of the declining trend channel. Nevertheless, the size of volume wasn’t significant (it didn’t confirm oil bulls’ strength) and the sell signals generated by the indicators remain in place, suggesting another downswing and a test of the last week’s lows and the lower border of the red declining trend channel in the coming days.

From today’s point of view, we see that the situation developed in line with the above scenario as crude oil extended losses. Thanks to yesterday’s drop, the black gold not only test our downside targets, but also declined and closed the day below them, which is a bearish development. Additionally, the sell signals generated by the weekly and daily indicators remain in place, suggesting that another downswing is still ahead us.

How Low Could Crude Oil Go?

If this is the case, and light crude extends losses from current levels, we’ll see a test of the 38.2% Fibonacci retracement (marked on the weekly chart) in the following days.

Nevertheless, if this support doesn’t stop oil bears, we may see a decline even to around $43-$43.07, where the green support zone (created by the September and November 9 lows and the red dashed support line) is.

Summing up, short (profitable) positions continue to be justified from the risk/reward perspective as crude oil declined sharply once again and broke below the lower border of the red declining trend channel, opening the way to lower levels.

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 9profitable) positions (with a stop-loss order at $54.15 and the next downside target at $43.08) 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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