Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective.

Although crude oil moved lower after the market’s open weakened by a stronger greenback, the commodity reversed and erased earlier losses in the following hours. Did this price action change the short-term picture?

Yesterday, the Institute of Supply Management showed that its manufacturing index rose to 52.8, beating forecasts for 52.0. Additionally, the Commerce Department reported that construction spending increased by 2.2% to an annual rate of $1.0 trillion, which is the highest since November 2008. Thanks to these solid numbers, the USD Index extended gains and climbed to almost 98, making crude oil less attractive for buyers holding other currencies. What impact did this price action have on the very short-term picture of the commodity? (charts courtesy of http://stockcharts.com).

Looking at the above charts, we see that although crude oil moved lower after the maket’s open, the commodity reversed and erased earlier losses. Despite this move, light crude is trading under the upper border of the green declining trend channel, which means that what we wrote yesterday is up-to-date also today:

(…) we should keep in mind that we saw similar upswings in the previous weeks. In all precious cases, the upper border of the green declining trend channel/declining wedge in combination with a bearish gravestone candlestick pattern and the long-term picture was strong enough to stop further improvement.

And speaking of the long-term picture… (…) we see that although crude oil moved higher in the recent days, the key resistance zone (created by the long-term blue resistance line and the 200-month moving average) continues to keep gains in check. In our opinion, this means that as long as there is no successful breakout above this area further rally is not likely to be seen and further deterioration is more likely than not.

Summing up, although crude oil erased earlier losses, the commodity remains below the key resistance zone (marked on the monthly chart) and the upper border of the green declining trend channel/declining wedge. Taking the above into account, we think that the space for further gains is limited and another downswing is just around the corner.

Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: mixed with bearish bias
LT outlook: mixed with bearish bias

Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective. 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

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