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 lost 0.81% after the U.S. Energy Information Administration showed in its weekly report another increase in crude oil and fuel inventories. Thanks to these circumstances, light crude erased Tuesday’s gains and came back to Monday’s levels. Will we see further deterioration in the coming days?
Although crude oil inventories at Cushing, Oklahoma dropped by 284,000 barrels last week, the EIA report showed that crude oil inventories increased by 2.840 million barrels in the week ended January 20, missing analysts’ forecast. Additionally, gasoline inventories rose by 6.8 million barrels, easily beating expectations for a gain of 0.5 million barrels. The report also showed that distillate supplies increased by 76,000 barrels. Thanks to these disappointing numbers, light crude erased Tuesday’s gains and came back to Monday’s levels. Will we see further deterioration in the coming days?
Let’s examine the charts below to find out (charts courtesy of http://stockcharts.com).
Looking at the above charts, we see that the overall situation remains almost unchanged as crude oil increased to the orange resistance line based on the previous highs, but then reversed and declined, erasing all Tuesday’s gains and finishing the day at Monday’s closing price. Additionally, yesterday’s move materialized on higher volume than earlier increase, which suggests another attempt to move lower in the following day(s).
Taking all the above into account, we believe that our previous commentaries remain up-to-date also today:
(…) crude oil is still trading in a narrow range between the previously-broken long-term red support/resistance line and the red gap, which continues to keep gains in check (both levels marked on the weekly chart).
Additionally, light crude remains under the orange resistance line based on the previous highs and below last Tuesday’s high, which means that the double top formation and the potential head and shoulders pattern are still in place, suggesting another attempt to move lower in the coming days.
If this is the case and we see a decline from here, crude oil will re-test the green support zone and the long-term red line (seen on the weekly chart) once again in a very near future.
Summing up, short positions continue to be justified as the double top formation and the potential head and shoulders pattern remain in place, suggesting another attempt to move lower in the coming days.
Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: bearish
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 – our subscribers – informed should anything change.
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, Gold & Silver Fund Manager
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