Oil Trading Alert originally sent to subscribers on March 4, 2015, 6:38 AM.
Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
On Tuesday, crude oil gained 1.73% ahead of U.S. supply data. As a result, light crude closed the day above the level of $50, but did this increase change anything in the short-term picture?
On Friday, Baker Hughes reported that the number of rigs drilling for oil in the U.S. fell to the lowest since June 2011, which fuelled hopes that U.S. crude oil inventories will begin to fall. As a result, crude oil gained 2.28% since the begining of the week and came back above the level of $50. Will we see a reliable breakout above this price level in the coming days? (charts courtesy of http://stockcharts.com).
From today’s point of view we see that crude oil moved higher once again and climbed above the previously-broken 50-day moving average. Although this is a positive signal, we should keep in mind that the commodity is still trading under the black resistance line, the lower border of the blue triangle and the resistance zone created by the 76.4% and 78.6% Fibonacci retracement levels (marked on the weekly chart).
Additionally, bearish candlesticks formations (the evening star and bearish engulfing pattern) are still in play, while the size of the volume that accompanied yesterday’s increase was even smaller than the day before, which suggests that the recent increases are not as bullish as it seems on the first sight. In our opinion, the situation in the very short-term will improve if light crude invalidates the breakdown under the above-mentioned key lines. Nevertheless, until this time further improvement is questionable and another downswing should not surprise us. In this case, the initial downside target would be around $47.36-$48.05, where the Feb 5 and Feb 11 lows are.
Summing up,crude oil moved higher once again, but the commodity still remains under the previously-broken black resistance line, the lower border of the blue triangle and the resistance zone created by the Fibonacci retracement levels (seen on the weekly chart). Therefore, we still think that as long as there is no invalidation of the breakdown under these levels higher values of the commodity are questionable and opening long positions is not justified from the risk/reward perspective as the situation remains unclear.
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, but 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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