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.

Although yesterday’s EIA report showed that crude oil inventories fell by 2.166 million barrels and distillate stockpiles dropped by 2.153 million barrels in the week ending April 5, crude oil reversed and declined. Will we see further deterioration in the coming days?

Let’s examine the charts below (charts courtesy of http://stockcharts.com).

Looking at the charts from today’s point of view, we see that although crude oil moved a bit higher after the market’s open, the key red resistance zone stopped further improvement triggering a pullback. Additionally, yesterday’s decline materialized on higher volume than earlier increases, which means that what we wrote yesterday remains up-to-date:

(…) the commodity is still trading under the long-term rising resistance line based on the February and November lows, which means that as long as there is no invalidation of the breakdown reversal and lower prices are more likely than not.

Additionally, the CCI and the Stochastic Oscillator remain in their overbought areas, which suggests that sale signals are just around the corner. On top of that, not far from current levels is also the key resistance zone, which stopped oil bulls many times in the previous months (between the March high of $53.80 and the January high of $55.24), which increases the probability of declines in very near future. Therefore, as long as there is no breakout above this major resistance zone short positions continue to be justified from the risk/reward perspective.

As always, we’ll 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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