Trading position (short-term; our opinion): Long positions (with the stop-loss order at $65.10 and the next upside target at $73.47) are justified from the risk/reward perspective.

In recent days, oil bears invalidated a tiny breakout above two resistances, which took the price of light crude under the previously-broken moving average. Wait a minute… haven’t we seen it before?

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

Technical Picture of Crude Oil

Looking at the daily chart, we see that oil bears showed their claws during yesterday’ session and took the commodity under the 50-day moving average. At the first glance, this is a negative development, which suggests further declines.

However, when we focus on the above chart, we can notice a similarity to the past.

As you see, crude oil invalidated the earlier tiny breakout above the previous high (marked with blue dashed horizontal line) and the 61.8% Fibonacci retracement in recent days. Such situation triggered yesterday’s downswing and took the commodity to the 38.2% Fibonacci retracement based on the August-September upward move (we marked the above situation with the blue ellipse).

Something similar, we could observe in June (we marked it also with the blue ellipse). Back then, black gold also invalidated the tiny move above the previous high and the 61.8% Fibonacci retracement, which resulted in a daily closure below the 50-day moving average – just like yesterday.

At this point, it’s worth noting that June’s pullback was slightly shallower, but we think that as long as the 38.2% Fibonacci retracement and the green support zone marked on the 4-hour chart remain in the cards another move to the upside is likely.

And speaking about the narrower perspective… let’s examine the chart below.

In our yesterday’s Oil Trading Alert, we wrote the following:

(…) Tuesday’s drop approached light crude to the green support zone created by the 38.2% Fibonacci retracement (based on the entire August upward move) and late-August lows, which means that even if the price moves a bit lower, the space for declines seems limited in the very short term.

As you see on the daily chart, although oil bears triggered one more downswing, the green support zone withstood the selling pressure and the price of black gold rebounded in the following hours.

Thanks to this move, the commodity invalidated the earlier tiny breakdown under the 38.2% Fibonacci retracement, which is a positive event – especially when we factor in the current position of the CCI and the Stochastic Oscillator (from this narrow perspective, we see that they generated the buy signals, suggesting further improvement later in the day).

At this point, we would like to remind that the latter indicator slipped to the lowest level since mid-August (we marked both situations with the green rectangles). What’s interesting, back then, such low reading of the indicator preceded a sizable move to the upside, which suggests that if the history repeats itself once again, the price of crude oil will increase in the very near future.

Connecting the dots, we believe that long positions continue to be justified from the risk/reward perspective.

Trading position (short-term; our opinion): Long positions (with the stop-loss order at $65.10 and the next upside target 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, Gold & Silver Fund Manager

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