Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
On Thursday, crude oil wavered between small gains and losses as a weaker greenback and worries over supply glut continued to weigh on investors’ sentiment. As a result, the commodity slipped to the medium-term support. Where will light crude head next?
Yesterday, the U.S. Department of Labor reported that the number of initial jobless claims increased by 11,000 in the previous week which missed analysts’ expectations. These disappointing numbers pushed the USD Index below the level of 95, making crude oil more attractive for buyers holding other currencies. Despite this support, Wednesday’s EIA report continued to weigh on the price, which resulted in a short-lived drop under $38. What’s next for light crude? Let’s examine the most important chart at the moment and find out what can we infer from it (charts courtesy of http://stockcharts.com).
Looking at the medium-term chart, we clearly see that although crude oil moved little lower once again, the medium-term red declining support line continues to keep declines in check. Additionally, light crude is still trading in the blue consolidation, which suggests that further declines would be more likely and reliable if the commodity drops under the lower line of the formation and invalidates earlier breakout above this important support line. Until this time, another rebound from this area can’t be ruled out.
Summing up, crude oil re-tested the medium-term red declining support line, which suggests that as long as there won’t be weekly closure below this line further declines are questionable.
Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed
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.
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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