Trading position (short-term; our opinion): No position is justified from the risk/reward perspective.
Bit by bit, the oil market is getting settled after the volatile Monday open. The shape of the full yesterday's session has been telling. Can we expect more upside, or better get ready to experience some downside now? Let's take a look at what the chart says.
We'll take a closer look at the chart below (chart courtesy of www.stooq.com ).
Yesterday, crude oil futures opened the day with a huge green gap, tested the previous peak and went on to move even higher, breaking above the mid-July highs.
The futures moved to the red gap created on May 22 and then also tested the resistance area created by the May peaks (marked with red horizontal lines).
The bulls however didn't manage to hold gained levels, the prices pulled back and the breakout above the upper border of the red gap has been invalidated. As a result, the red gap remains open, and this encouraged the sellers to act earlier today.
The futures opened today with another red gap, which triggered further deterioration in the following hours. Taking this fact into account, we think that the futures will extend losses and test the previously-broken mid-July peaks and the upper border of the rising green trend channel that intersects these peaks, in the very near future.
Nevertheless, as long as the futures remain above the huge green gap and below the two red gaps that serve as nearest resistances, opening any positions seems not to be a prudent investment idea.
Summing up, the post-Saudi strikes oil spike has tested important resistances and gaps, the bulls however haven't been able to hold all the ground gained. While upcoming oil decline to the mid-July peaks and the upper border of the rising green trend channel is likely, opening any positions doesn't seem to be a wise course of action from the risk-reward point of view.
Trading position (short-term; our opinion): No position is justified from the risk/reward perspective. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
