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.
On Tuesday, oil bears won the battle for the lower border of the rising trend channel, which resulted in a decline. Thanks to this price action they gained one more ally. What does this mean for the future of crude oil? We invite you to read today's alert.
Crude Oil’s Technical Picture
Let's take a look at the chart below (charts courtesy of http://stockcharts.com).
Quoting our Monday’s alert:
(…) the commodity climbed to our upside target - and the previously-broken lower border of the blue rising trend channel, which looks like a verification of the earlier breakdown.
This scenario is also reinforced by the volume, which accompanied recent increases. As you see on the charts, last week’s upward move materialized on visibly lower volume (compared to what we saw a week earlier) – not only in terms of weekly candlesicks, buy also on the daily basis, which increases doubts about the strength of the demand side and suggests that reversal is just around the corner.
Looking at the daily chart, we see that the situation developed in line with the above scenaio and oil bears finally showed their claws during yesterdy’s session. Thanks to their attack black gold pulled back and not only moved away from the lower line of the blue rising trend channel, but also invalidated the earlier breakout above the 61.8% Fibonacci retracement.
Additionally, yesterday’s decline materialized on higher volume, suggesting that oil bears may gathering forces for the next attack in the oming days. This scenario is also reinforced by the current volume seen on the weekly chart below.
On top of that, yesterday’s drop showed that the negative correlation between the greenback and black gold remains in place. Let’s take a look at the daily chart below.
Relationship Between Crude Oil and U.S. Dollar
From tis perspective, we see that yesterdya’s increase in the USD Index gave oil bears one more reason to act, which suggests that if this tendency continues, we’ll see further deterioratio in light crude in the near future.
How low could crude oil go?
In our opinion, if black gold extends declines from current levels, we’ll see a downward move to at least February lows in the coming day(s).
Summing up, crude oil verified the earlier breakdown under the lower line of the blue rising tend channel, twhich gave oil bears another reason to act. Thanks to this new allly, we think that crude oil will extend losses in the coming week and test the February lows in the coming week. Therefore, in our opinon, short positions continue to be 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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