Trading position (short-term; our opinion): Short position with a fresh stop-loss order at $63.30 and the next downside target at $56.13 is justified from the risk/reward perspective.
What an answer have we received to our yesterday's Alert headline question. Rhetorical question, that is. Okay, oil is diving lower as we speak, so is it now a more appropriate time to discuss the possibility of a turnaround? Assessing the current outlook will give us the right answer.
Let's take a closer look at the chart below (chart courtesy of www.stooq.com ).
We have written these words yesterday:
(...) As the lower green gap created on July 8 still remains open, the bulls may get their act together there and attempt to reach the declining red resistance line before we see another move south towards our initial downside target.
With yesterday's move, crude oil futures have indeed turned down after a test of the declining red resistance line, making our short position even more profitable.
Black gold dropped to its early-July lows, and while they have initially jumped higher, the commodity turned lower again. At the moment of writing these words, it trades at around $55.50, which is below yesterday's lows and our initial target already. Little wonder as the sellers closed the green gap (created on July 8) yesterday, closing the day below the lower border of the formation.
Yesterday's price action also created a bearish red gap, which serves as the nearest resistance right now. As long as it remains open, another reversal and attempt to move lower remains likely - especially when we factor in the sell signals generated by daily indicators.
Summing up, the oil plunge continues like there's no tomorrow. The volume is picking up since black gold had been unable to overcome a strong combination of resistances (the red resistance zone and the 61.8% Fibonacci retracement) earlier this week. The bearish divergences remain in force: both between the CCI and oil prices, and between the Stochastic Oscillator and oil prices. The short-term outlook is further strengthened with yesterday's bearish gap in oil futures. All the above support the bears, and the short position remains justified.
Trading position (short-term; our opinion): Short position with a fresh stop-loss order at $63.30 and the next downside target at $56.13 is justified from the risk/reward perspective.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
