Oil Trading Alert originally sent to subscribers on December 31, 2014, 11:26 AM.
Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
On Tuesday, crude oil continued to fall after the market’s open on concerns over global supplies, which resulted in a fresh 2014 low. In this way, light crude reached the next solid support zone, but will it withstand the selling pressure?
Yesterday, after the market’s open crude oil extended losses, hitting a fresh multi-year low of $52.70 as worries over a global supply glut continued to weight. Despite this drop, the commodity rebounded later in the day as a combination of a weaker greenback and hopes that U.S. supplies fell last week supported the price. Will we see further improvement in the coming days? (charts courtesy of http://stockcharts.com).
In our previous Oil Trading Alert, we wrote the following:
(…) after several days in the consolidation crude oil broke below the lower border of the formation (marked with blue) – similarly to what we saw at the beginning of the month. Taking this fact into account, and combining it with an invalidation of the positive impact of doji candlestick formations, we think that lower values of the commodity are still ahead us. If this is the case, we’ll see a test of the support zone created by the 76.4% and 78.6% Fibonacci retracement levels (around $51-$52.73) in the coming day (or days).
Looking at the charts, we see that the situation developed in line with the above-mentioned scenario and crude oil slipped to our downside target. As you see on the weekly chart, the green support zone withstood the selling pressure, triggering a small rebound, which took the commodity above $54 (an intraday high of $54.32). In this way, light crude invalidated the breakdown below the previous lows and came back to the consolidation range, which is a positive signal. Despite this move, it’s hard to say that the situation in the very short term (not to mention the short- or medium-term perspective) has improved as yesterday’s upswing is barely visible on the weekly chart. In our opinion, the situation will improve, if we see an increase above the upper line of the consolidation and a confirmed breakout above the 38.2% Fibonacci retracement at $59.14. Until this time, another downswing and test of the above-mentioned support zone is more likely than not.
Before we summarize today’s alert, we would like to draw your attention to the fundamental factor, which will likely have a great impact on today’s price action. Later in the day, the U.S. Energy Information Administration is set to release storage data for the week ended Dec. 26. Analysts expect that the report will show a drop in U.S. oil supplies, which could boost prices. However, yesterday, the American Petroleum Institute showed that weekly total U.S. crude stockpiles rose by 760,000 barrels, and stockpiles at the Cushing, Oklahoma rose by 1.8 million barrels. If today’s the EIA’s report confirm these numbers, we’ll see another test of the support zone created by the 76.4% and 78.6% Fibonacci retracement levels (around $51-$52.73).
Summing up, although crude oil bounced off the support zone, yesterday’s upswing is too small to say that the situation has improved. Taking this fact into account, we think that as long as there is no breakout above the 38.2% Fibonacci retracement (based on the recent declines) or breakdown under the 76.4% and 78.6% Fibonacci retracement levels opening any positions is not justified from the risk/reward perspective.
Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bullish
Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective at the moment. We will keep you informed should anything change.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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