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.
At the end of the previous week, the combination of two supports managed to stop the sellers two times in a row and saved the short-term outlook. Yesterday, oil bears re-tested them once again. Is there anything that can encourage the buyers to act and push the price of black gold to higher levels in the following days?
Let’s examine the charts below (charts courtesy of http://stockcharts.com).
Technical Picture of Crude Oil
Looking at the above chart, we see that although crude oil moved a bit lower during yesterday’s session, the commodity is still trading above the blue support line (the lower border of the medium-term blue rising trend channel seen on the weekly chart) and the 61.8% Fibonacci retracement.
This means that the overall situation in the short term remains almost unchanged and one more rebound from here is very likely – especially when we factor in the fact that oil bulls withstood the selling pressure in this area two times in a row.
Taking all the above into account, we believe that our yesterday’s comments are up-to-date also today:
(…) the lower border of the blue rising trend channel in combination with the 61.8% Fibonacci retracement withstood the selling pressure for the second time in a row, which increases its importance for crude oil future’s moves. In other words, as long as there is no daily/weekly closure below these supports another attempt to move higher is very likely.
Additionally, thanks to Friday’s rebound, crude oil erased almost entire move to the downside and closed the week inside the blue trend channel, which suggests that further improvement is just around the corner.
If this is the case and light crude moves higher from current levels, the first upside target will be the red resistance zone (created by the 61.8% Fibonacci retracement, the mid-July and the Sept highs), which stopped oil bulls in the previous week. However, if it is broken, we can see a rally even to around $74 and the 2018 peaks in the following week(s).
Finishing today’s alert, we would like to draw your attention to one more important issue – a potential reverse head and shoulders pattern. (…)
From this perspective, we see that the last week’s decline could be the right shoulder of the above-mentioned reversal pattern and the September high together with the late-July peak are the base on which we based the neckline of the formation.
Of course, this is only a preliminary assumption, which we consider as reliable only when the price of black gold rises above the blue dashed line seen on the above chart.
Until this time, we will carefully observe the behavior of both sides of the market to respond appropriately to emerging changes. Stay tuned.
Summing up, long positions continue to be justified from the risk/reward perspective as crude oil remains above two important supports, which managed to stop the sellers in at the end of the previous week.
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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