Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.

On Monday, the black gold moved a bit lower after oil investors reacted to bearish Friday’s Baker Hughes’ report, which showed that U.S. drillers added oil rigs for the next week in a row. In these circumstances, the black gold lost 0.99% and slipped under the 200-day moving average once again. Will this event encourage oil bears in the coming day?

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

From today’s point of view, we see that crude oil moved a bit lower yesterday, which resulted in a comeback below the 50-week moving average and the 200-day moving average. Additionally, the CCI and the Stochastic Oscillator slipped to their oversold areas, which together suggest that the commodity will likely test the strength of the blue support line in the coming day.

Nevertheless, if we see such price action (or even a drop below it), the space for declines seems limited (at least in the very short-term perspective) as the long-term green support line based on the August and November lows is quite close from current levels. In this area are also the 61.8% Fibonacci retracement based on the November-January upward move and the 50% retracement based on the August-January increases, which together stopped oil bears in March.

Therefore, in our opinion, as long as there is no breakdown under this solid support area further declines are doubtful and rebound is more likely. However, if we see a drop and a daily closure below this area we’ll consider re-opening short positions. As always, we will keep you – our subscribers – informed should anything change.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager

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