Oil Trading Alert originally sent to subscribers on November 12, 2014, 10:46 AM.
Trading position (short-term; our opinion): Long positions with a buy limit order at $75.82 and a stop-loss at $73.47 are justified from the risk/reward perspective.
Although crude oil moved lower after the market’s open, the commodity erased losses later in the day, hitting an intraday high of $78.04 as concerns over the situation in Libya supported the price. In this way, light crude gained 0.45% and bounced off the recent lows. Will we see a post double-bottom rally in the coming days?
Yesterday, crude oil moved lower after the market’s open as expectations that the Federal Reserve will begin hiking interest rates in 2015 pushed the U.S. dollar higher, making the commodity less attractive among investors holding other currencies. However, light crude rebounded later in the day, supported by concerns that conflict in Libya may disrupt the country's El Sharara oilfield. As a result, crude oil bounced off the recent lows, but will oil bulls be strong enough to trigger a post-double bottom rally? (charts courtesy of http://stockcharts.com).
The situation in the medium term hasn’t changed much as crude is still trading in a narrow range slightly above the support zone created by the Aug and Oct 2011 and Jun 2012 lows. Will the very short-term picture of crude oil give us any clues about future moves? Let’s examine the daily chart and find out.
From this perspective, we see that the first resistance zone created by the previous lows and the barrier of $80 stopped further improvement earlier this week. As a result, crude oil moved lower and approached the support area based on the recent lows and the lower border of the very short-term declining trend channel. If it withstand the selling pressure, light crude will rebound from here and the initial upside target would be Monday’s high of $79.85. At this point, it’s worth noting that slightly above this resistance is also the upper line of the declining trend channel, which reinforces the above-mentioned resistance zone at the moment. Therefore, we still believe that as long as crude oil remains under these levels, a sizable move is not likely to be seen and another test of the strength of the recent lows should not surprise us. Nevertheless, please keep in mind that even if crude oil extends losses in the coming days, the space for further declines seems limited as the solid support zone created by the Aug 2011 low of $75.71 and the 50% Fibonacci retracement level based on the entire 2009-2011 rally (at $74.19) is quite close.
Summing up, although crude oil erased last week’s gains, the commodity is still trading in the consolidation slightly above the recent lows. If crude oil extends losses in the coming days, the space for further declines seems limited and we think opening long positions when crude oil drops to $75.82 with a stop-loss order at $73.47 is 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): Long positions with a buy limit order at $75.82 and a stop-loss at $73.47 are justified from the risk/reward perspective. 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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