Trading position (short-term; our opinion): Short positions with a stop-loss order at $70.96 and the initial downside target at $62.85 are justified from the risk/reward perspective.

Up and down and… what will happen with oil in the coming days? Based on the fairly sobering regularity that accompanies oil prices since the beginning of the year, we have some suspicions and share them with you in today's alert.

Technical Analysis of Crude Oil

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

Looking at the daily chart, we see oil bears pushed crude oil lower after the market’s open, but thy didn’t manage to hold gained levels. As a result, light crude rebounded and came back to the previously-broken upper border of the green rising trend channel.

Although this is a positive development, there was no breakout above this line (in terms of daily closures), which looks like another verification of the earlier breakdown. Additionally, the Stochastic Oscillator generated a sell signal, suggesting lower prices.

Nevertheless, despite these circumstances, we can’t forget about the tringle apex reversal and turning points about which, we wrote more in our yesterday’s alert:

(…) when we take a closer look at the daily chart, we can notice the red triangle (marked with red dashed lines) created by the resistance line based on the January and February peaks and the support line based on the December and February lows. What does this formation can tell us abut crude oil’s future moves? Not much than this that the above-mentioned lines will cross on April 25 or April 26. In other words, we can see another triangle apex reversal in the coming days.

Speaking about these dates… we analyzed the daily chart in terms of reversals and we discovered something interesting. As you see on the above chart, all earlier 2018 peaks were created around the 25th day of the month. We noticed a reversal on January 25, February 26 and March 26. Is that a quinsidence? Maybe, but quite regular (…) which increases the probability that the history will repeat itself once again in the very near future.

Are there any technical factor that could stop for longer oil bulls? Yes, there is one very important obstacle that barricades the way to the north. Let’s take a look at the long-term chart below and recall the quote from our last commentary:

(…) the strong resistance area (marked with the green ellipse) created by the barrier of $70, the 50% Fibonacci retracement based on the 2011-2016 downward move and the 38.2% retracement based on the entire 2008-2016 declines. This means that even if oil bulls manage to push crude oil a bit higher once again and create a fresh peak on April 25 or April 26, the space for gains is limited and further deterioration is just around the corner.

On top of that, the pro-bearish scenario is also reinforced by the current picture of the WTIC:UDN ratio about which we wrote in our Wednesday’s Oil Trading Alert:

Crude Oil from Non-USD Perspective

(…) As a reminder, please note that UDN is the symbol for the PowerShares DB US Dollar Index Bearish Fund, which moves in the exact opposite direction to the USD Index. Since the USD Index is a weighted average of the dollar's exchange rates with world's most important currencies, the WTIC:UDN ratio displays the value of crude oil priced in "other currencies".

(…) the ratio extended gains and climbed to the strong resistance area created by the upper borders of the black rising trend channel (based on an intraweek highs and closing prices), which suggests that the space for gains may be limited and reversal is just around the corner.

Summing up, yesterday, crude oil increased once again and came back to the upper line of the rising trend channel, which looks like another verification of the earlier breakdown under this line. Although this is a bearish sign, we can’t be ruled out one more upswing to a fresh high, basing on the triangle apex reversal pattern and recently discovered crude oil turning points. Nevertheless, the space for gains seems limited as the strong resistance zone is very close from current levels (not only from the U.S. dollar perspective, but also from the non-USD point of view).

Finishing today’s Oil Trading Alert, please keep in mind that we moved the stop-loss order higher to avoid closing our short positions caused by one-day upswing (e.g. after the publication of the API or EIA weekly reports on crude oil and its products inventories).

Trading position (short-term; our opinion): Short positions (with a stop-loss order at $70.96 and the initial downside target at $62.85) 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.

On an administrative note, due to your Editor’s travel plans for the rest of the week, the next few alerts will be shorter than the ones that we’ve been publishing recently. Of course, we will keep an eye on the market and we’ll keep posting the alerts on a daily basis, plus intraday alerts whenever the situation requires it.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager

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