Oil Trading Alert originally sent to subscribers on June 22, 2015, 11:08 AM.
Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective.
On Friday, crude oil lost 1.36% as the combination of a stronger greenback, disappointing Baker Hughes’ report and Saudi Arabia oil minister’s commentary weighed on investors’ sentiment. In these circumstances, light crude moved away from its major resistance zone and closed the day below $60. What awaits the commodity in the coming week?
On Friday, the USD Index moved higher as solid Thursday's U.S. economic reports continued to weight, making crude oil less attractive for buyers holding other currencies. Additionally, Thursday’s Saudi Arabia oil minister Ali Al-Naimi commentary that his country has around 1.5 million-2 million barrels of daily reserves and is ready to increase production if demand raises fuelled worries over a supply glut and pushed the price lower as well. On top of that, Baker Hughes reported that the U.S. oil rig count fell by 4 in the previous week, marking the 28th consecutive week of weekly declines. Although U.S. oil rigs are now at their lowest level since August, 2010, the pace of decline continues to slow (the last week's drop was the smallest reduction since December). Thanks to these circumstances light crude bounced down the major resistance zone and closed the day below $60. What awaits the commodity in the coming week? (charts courtesy of http://stockcharts.com).
Quoting our Friday’s Oil Trading Alert:
(…) crude oil bounced off the green support line and climbed to the red resistance zone – similarly to what we saw in the previous weeks. This suggests that we’ll likely see another pullback from here and a comeback to the upper border of the declining wedge – especially when we factor in the size of volume (…) yesterday’s move materialized on tiny volume, which doesn’t confirm oil bulls’ strength and increases the probability of another downswing.
Looking at the daily chart, we see that the situation developed in line with the above scenario and crude oil re-approached the green support line. Taking this fact into account, and combining it with the long-term picture and sell signals generated by the indicators, we think that further deterioration is just around the corner. Nevertheless, in our opinion, another bigger downward move will be more likely if we see a daily close below the green support line and the 50-day moving average (currently under $58.66). In this case, the next target (and the last stop before the Feb highs) would be the blue support zone ($56.50-$57.60). Until this time, short-lived moves (similar to what we saw in previous weeks) in both directions should not surprise us.
Summing up, crude oil re-tested the red zone once again, but this solid resistance withstood the buying pressure and pushed the commodity lower – similarly to what we saw in previous weeks. This means that as long as this zone (reinforced by the 200-month moving average and the long-term blue line) keeps gains in check further rally is not likely to be seen and further deterioration should not surprise us.
Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: mixed with bearish bias
LT outlook: mixed with bearish bias
Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective. We will keep you – our subscribers – informed should anything change.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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