Trading position (short-term; our opinion): Short positions (with the stop-loss order at $68.15 and the initial downside target at $56.57) are justified from the risk/reward perspective.
On Thursday, black gold gained 0.94% supported by a weaker U.S. dollar and comments made by United Arab Emirates energy minister, which resulted to a climb to two nearest resistances. Did yesterday’s increase change the short-term outlook for crude oil?
Let's examine the daily chart and find out how yesterday’s move affected the short-term picture of black gold (charts courtesy of http://stockcharts.com).
Crude Oil’s Technical Picture
Looking at the above chart, we see that although crude oil extended gains on Thursday, the previously-broken 50-day moving average and the 38.2% Fibonacci retracement (based on the entire recent downward move – we marked it with red) stopped oil bulls, triggering a pullback.
Due to its size the above-mentioned drop may seem insignificant at first glance, but thanks to it the price of oil invalidated the earlier tiny breakouts the 38.2% retracement and the blue moving average, closing the day below them.
Additionally, yesterday’s increase materialized on visibly smaller volume than the earlier declines, which suggests that oil bulls may not be as strong as it seems. Therefore, in our opinion, if black gold moves lower from current levels and invalidates the breakout above the upper border of the blue consolidation, we’ll see not only a test of the recent lows, but also a decline to around $55.82-$56.12, where the December lows and the 50% Fibonacci retracement are. As we wrote in our previous alerts in this area the size of the downward move will correspond to the height of the blue rising trend channel, which increases the probability that oil bears will test this area.
As always, we’ll keep you - our subscribers - informed should anything change, or should we see a confirmation/invalidation of the above.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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