Trading position (short-term; our opinion): Short positions (with the stop-loss order at $68.15 and the initial downside target at $56.57) are justified from the risk/reward perspective.

Tensions in the Middle East in combination with the possibility of further declines in Venezuelan production encouraged oil bulls to act, which resulted in a breakout above the short-term resistance line. Do the bears have already lost all allies or maybe they still have some aces up their sleeves?

Let's examine the charts below (charts courtesy of http://stockcharts.com).

The first thing that catches the eye on the daily chart is the breakout above the black declining resistance line based on the February highs. Thanks to this positive event oil bulls managed to push light crude to the first important resistance – the red zone created by the late February and earlier March peaks.

As you see this area is also reinforced by the red declining resistance line based on the 2018 peaks and two pro-bearish candlesticks formations (bearish engulfing patterns), which suggests that if black gold closes today’s session above these resistances, the way to the north will likely be open.

Why only likely?

Because when we take a closer look at the weekly chart we notice that black gold is currently trading in the blue consolidation between February high and low, which together created the biggest red candle since months.

Therefore, if oil bulls want to go higher they will have to break above the upper line of the formation at $65.40. Until this time, reversal and lower prices are likely – especially when we factor in the fact that we could see a double-top formation around February 26 peak of $64.24.

If this is the case and oil bears wake up in this area, we’ll see (at least) a comeback to the major support zone based on the barrier of $60 and the upper border of the green rising trend channel (seen on the weekly chart) in the following days.

Summing up, short positions continue to be justified from the risk/reward perspective as crude oil is still trading under the red resistance zone, which continues to keep gains in check.

Trading position (short-term; our opinion): Short positions (with the stop-loss order at $68.15 and the initial downside target at $56.57) are justified from the risk/reward perspective. As always, we’ll keep you - our subscribers - 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, Gold & Silver Fund Manager

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