Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
On Tuesday, crude oil lost 2.54% as the combination of the EIA forecasts and a stronger U.S. dollar weighed on the price. In these circumstances, light crude declined under the previously-broken support line, approaching the mid-Feb lows. Will we see a rebound from here or a breakdown below them?
The U.S. Energy Information Administration revised its forecasts for domestic crude oil production from 9.3 million barrels a day to 9.35, which in combination with a stronger greenback (the USD Index climbed to the levels not seen since 2004) pushed crude oil to an intraday low of $48.20. Will we see further deterioration in the coming days? How low could the commodity go? (charts courtesy of http://stockcharts.com).
Looking at the weekly chart, we see that crude oil moved lower, breaking below the last week’s low, which suggests further deterioration. If this is the case, the initial downside from our previous Oil Trading Alert would be in play:
(…) the resistance zone created by the 76.4% and 78.6% Fibonacci retracement levels, which suggests that we could see another test of the green support zone (based on the Apr 2009 lows) in the coming week – similarly to what we saw at the end of the previous month.
How yesterday’s downswing affected the very short-term picture? Let’s check.
From this perspective, we see that although crude oil moved little higher after the market’s open, oil bulls didn’t even manage to push the commodity to the previously-broken green support/resistance line, which suggested their weakness. As a result, light crude reversed and declined once again. With this downswing, crude oil dropped under the 50-day moving average and approached the green support zone created by the Feb 5 and Feb 11 lows. Although the commodity could rebound from here, it seems that the medium-term picture in combination with the sell signal generated by the Stochastic Oscillator will encourage oil bears to act once again. If this is the case, light crude will move lower and test the support area around $47.36-$48.05 in the coming day(s).
Summing up,crude oil reversed and dropped under the previously-broken 50-day moving average, which suggests further deterioration and another test of the green support zone around $47.36-$48.05 in the coming day(s).
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bullish
Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective at the moment, but we will keep you informed should anything change.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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