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 Friday, crude oil gained 2.11% and came back above $53, but did this increase change anything in the short-term picture of the black gold?
Let’s examine the charts below to find out (charts courtesy of http://stockcharts.com).
On the weekly chart, we see that crude oil increased and came back above the previously-broken long-term red support/resistance line. Although this is a positive event, we saw a similar situation earlier this month. What happened back then? Not much, because the red gap stopped further improvement, triggering a pullback. Therefore, as long as oil bulls do not close the gap another attempt to move lower is very likely – especially when we factor in the sell signals generated by the indicators.
Having said the above let’s examine the daily chart and look for more bearish factors.
From this perspective, we see that the green support zone encouraged oil bulls to act once again, which resulted in another rebound. With Friday’s move light crude increased above $53, but did this move change anything in the short-tem perspective? In our opinion, it didn’t. Why? Because the black gold is still trading under the Tuesday high, which means that the double top formation and its negative impact on the price are still in effect.
Additionally, as long as there is no invalidation of this pattern, the head and shoulders formation is underway, suggesting lower prices of the black gold in the coming days. This scenario is also reinforced by the current position of the indicators – the sell signals are still in place, favoring oil bears and suggesting another attempt to move lower.
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.
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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