Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
On Wednesday, crude oil broke above one declining resistance line and yesterday it broke above the second one. Was the breakout just confirmed and should expect higher prices?
Today’s alert will feature just one chart, but a one that appears critical – the long-term one – let’s move right to it (charts courtesy of http://stockcharts.com).
Yesterday, we commented on the above chart in the following way:
In the opening paragraph of today’s alert we wrote about a breakout above the declining resistance line. This was just a breakout above the lower of the lines and the upper one (based on intra-day highs) was not reached (at $40), let alone broken. Consequently, it’s not likely that crude oil would move much higher, even though its price did increase in today.
We have just seen a breakout above the upper resistance line as well, but still, we don’t view this breakout as confirmed just yet. Consequently, the situation became less bearish and it appears that caution (and not entering short positions) recently was the correct approach. What’s next? That depends to a large extent on what happens today and what weekly closing prices we get. If the breakout is confirmed, it may be a good idea to open a speculative long position, but it’s too early to say so now. We’ll have more to say in Monday’s alert.
Summing up, the outlook for crude oil became less bearish based on yesterday’s breakout, but since the latter was not confirmed it seems that it’s too early to discuss opening long positions. We will get more information after the markets close today (thanks to the weekly closing prices) and we’ll discuss the details on Monday.
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed with bearish bias
MT outlook: mixed with bearish bias
LT outlook: mixed with bearish bias
Trading position (short-term; our opinion): No positions 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.
Since it is impossible to synchronize target prices and stop-loss levels for all the ETFs and ETNs with the main market that we provide this level for (crude oil), the stop-loss level and target price for popular ETN and ETF (among other: USO, DWTI, UWTI) are provided as supplementary, and not as “final”. This means that if a stop-loss or a target level is reached for any of the “additional instruments” (DWTI for instance), but not for the “main instrument” (crude oil in this case), we will view positions in both crude oil and DWTI as still open and the stop-loss for DWTI would have to be moved lower. On the other hand, if crude oil moves to a stop-loss level but DWTI doesn’t, then we will view both positions (in crude oil and DWTI) as closed. In other words, since it’s not possible to be 100% certain that each related instrument moves to a given level when the underlying instrument does, we can’t provide levels that would be binding. The levels that we do provide are our best estimate of the levels that will correspond to the levels in the underlying assets, but it will be the underlying assets that one will need to focus on regarding the sings pointing to closing a given position or keeping it open. We might adjust the levels in the “additional instruments” without adjusting the levels in the “main instruments”, which will simply mean that we have improved our estimation of these levels, not that we changed our outlook on the markets.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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