Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
Yesterday, crude oil extended losses and dropped to a fresh April’s low. Will we see lower prices of the commodity in the coming days?
Let’s take a closer look at the charts below and find out (charts courtesy of http://stockcharts.com).
Quoting our previous alert:
(…) light crude closed yesterday’s session under the barrier of $50, invalidating the earlier tiny breakout. This suggests that another downswing should not surprise us – especially when we factor in the fact that crude oil futures extended losses and dropped to an intraday low of $48.95 earlier today.
How low could the black gold go in the coming day(s)? In our opinion, the first downside target will be the 200-day moving average (currently around 49.04). However, if it is broken, the next downside target will be the blue support line based on the November and March lows (currently around $48.30).
From today’s point of view, we see that the situation developed in line with the above scenario and crude oil reached our downside targets. What’s interesting, with yesterday’s decline light crude also dropped the long-term support line marked on the monthly chart below.
As you see on the above chart, this support was strong enough to stop oil bulls in the previous month, which suggests that history may repeat itself once again. Additionally, the daily CCI and the Stochastic Oscillator are oversold and the latter generated even a buy signal, which increases the probability of reversal in the coming day. Taking all the above into account, we believe that closing our short positions and taking profits off the table is justified from the risk/reward perspective at the moment.
Summing up, crude oil slipped to two important support lines and the Stochastic Oscillator generated the buy signal, which together increases the probability of reversal and rebound in the coming days.
Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed with bearish bias
LT outlook: mixed
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.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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