Trading position (short-term; our opinion): Short position with a stop-loss order at $58.87 and the initial downside target at $53.85 is justified from the risk/reward perspective.

While yesterday's bullish moves have been rebuffed, the buyers haven't given up and are making a move today. Does such an upswing defy the technical odds, and if so, will today's inventory report prove to be the catalyst of a downward reversal? Let's assess the likelihood of this (and any other) scenario.

Let's take a closer look at the charts below (charts courtesy of http://stockcharts.com and www.stooq.com ).

Although crude oil moved higher and broke above the 50-day moving average yesterday, several obstacles stood in the bulls' way. The 200-day moving average and the declining red resistance line based on the previous peaks stopped their advances.

The commodity pulled back, and light crude closed below all three resistances, invalidating the earlier tiny breakouts. This doesn't bode well for further improvement - especially when we factor in the proximity to the red gap and the 61.8% Fibonacci retracement, which together serve as the nearest resistances.

How did yesterday's action reflect upon investors earlier today?

Crude oil futures are pointing higher as they broke above the upper border of the declining red trend channel - similarly to what we saw yesterday. Black gold is still trading below the red, today's upswing having reached $56.80 notwistanding. The absence of further rally would suggest similar price action to the Tuesday's one - an invalidation of the earlier tiny breakout.

Let's zoom in and analyze the 4-hour chart. The overall situation hasn't changed much as the futures remain not only inside the very short-term green rising trend channel, but also are trading below yesterday's high. Should they close the day invalidating their current advance reaching $56.80, it would not confirm the bulls' strength.

Additionally, the CCI and the Stochastic Oscillator generated their sell signals, which increases the probability of a move to the downside and at least a test of the lower border of the formation in the very near future (maybe even later today after today's crude oil inventory report).

Before summarizing, please note that if the futures break below the lower border of the above-mentioned green channel, the way to our initial downside target will be open.

Summing up, oil bulls have reached an important resistance yesterday, yet their intraday breakout has been invalidated. Earlier today, they've made another attempt and are so far holding onto their gains. The combined technical factors of multiple resistances, the Stochastic Oscillator's sell signal and the 4-hour chart daily indicators' sell signals indicate that a downward oil reversal is very likely. The short position remains justified.

Trading position (short-term; our opinion): Short position with a stop-loss order at $58.87 and the initial downside target at $53.85 is justified from the risk/reward perspective.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist