Oil Trading Alert originally sent to subscribers on October 3, 2014, 7:07 AM.
Trading position (short-term; our opinion): Long positions with a stop-loss order at $86.27 are justified from the risk/reward perspective. Initial price target: $96.
Yesterday's price action in crude oil was something that showed once again that "everyone has brain power to make money in stocks, but few have the stomach." Sessions like these (or trading before such sessions) is when having a pro on your side can make all the difference between staying the course and selling close to the bottom. The outlook for the crude oil market has been bullish for some time and yesterday's session didn't change that. In fact, the outlook is now even more bullish and the long positions seem justified from the risk/reward point of view. Let's see why (charts courtesy of http://stockcharts.com).
Quoting our yesterday’s summary:
(…) although crude oil closed yesterday’s session above the recent lows, today’s drop in crude oil futures for delivery in November suggests that the price of crude oil could move a little lower before the final bottom is in. At the same time it is still the case that the situation in the USD Index could cause a sharp upswing in crude oil in the following days (or even later today) and it seem that keeping long position intact is a good idea.
As you see on the above chart, the situation developed in line with our yesterday’s scenario as crude oil declined to a fresh multi-month low of $88.18 and then rebounded sharply, invalidating earlier breakdown. This is a strong bullish signal – especially, when we factor in the fact that with this upswing, the commodity invalidated also a breakdown under the long-term support line and the 61.8% Fibonacci retracement (both seen more clearly on the charts below). What’s interesting, despite yesterday’s drop, crude oil didn’t even slipped below the lower border of the declining trend channel, which is another positive sign. On top of that, the volume that accompanied yesterday’s move was huge (the highest since Oct 2012), which signifies to us the real direction in which the commodity is heading. Please note that crude oil reached the upper line of the declining trend channel, which may trigger a pulback from here. However, we believe that even if it appears, it will be shallow and short-lived.
Having say that, let’s take a look at the weekly charts from two different perspectives.
Looking at the above chart, we see that although crude oil declined below the long-term support line and the 61.8% Fibonacci retracement, this deterioration was only temporarily and the commodity invalidated the breakdown very quickly. As we have pointed out before, this is a strong bullish signal, which suggests that the next sizable move will be to the upside and the final bottom might be in (especially when we factor in the fact that wave 5 is shorter than wave 1). If this is the case, the initial target for oil bulls will be around $95, where the recent high are.
Summing up, we are convinced that keeping long positions is still justified from the risk/reward perspective as the breakdown below the recent lows and the key medium-term support zone was invalidated very quickly. To us, this signifies that the final bottom might be in and the next sizable move will be to the upside.
Very short-term outlook: bullish
Short-term outlook: mixed with bullish bias
MT outlook: mixed
LT outlook: bullish
Trading position (short-term; our opinion): Long with a stop-loss order at $86.27. 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
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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