Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective.
Yesterday’s solid housing data supported the greenback and pushed the USD Index above the level of 94.50. Did this upswing affect the very short-term picture of crude oil?
On Monday, the National Association of Realtors reported that U.S. existing home sales rose by 5.1% (to the highest level since November 2009), beating analysts’ expectations for a 4.4% rise. Although these bullish numbers supported the U.S. currency, crude oil didn’t move lower, showing some strength. Will the technical picture of the commodity encourage oil bulls to act? (charts courtesy of http://stockcharts.com).
As you see on the daily chart, the proximity to the green support line encouraged currency bulls to act and resulted in a small rebound. Despite this upswing, the red resistance zone continues to keep gains in check, which means that what we wrote in our previous Oil Trading Alert is up-to-date also today:
(…) Taking (…) into account (…) the long-term picture and sell signals generated by the indicators, we think that further deterioration is just around the corner. Nevertheless, in our opinion, another bigger downward move will be more likely if we see a daily close below the green support line and the 50-day moving average (…). In this case, the next target (and the last stop before the Feb highs) would be the blue support zone ($56.50-$57.60). Until this time, short-lived moves (similar to what we saw in previous weeks) in both directions should not surprise us.
Finishing today’s alert we would like to draw your attention to the size of volume. When we take a closer look at the daily chart we notice that yesterday’s upswing materialized on a lower volume than the previous day's decline, which means that oil bulls might not be as strong as it might seem on the first sight and lower values of the commodity are just around the corner.
Summing up, although crude oil moved little higher, the red zone continues to keep gains in check, which means that as long as there is no breakout above this area (which is also reinforced by the 200-month moving average, the long-term blue line and two bearish candlesticks formations) further rally is not likely to be seen and lower values of light crude should not surprise us.
Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: mixed with bearish bias
LT outlook: mixed with bearish bias
Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective. We will keep you – our subscribers – informed should anything change.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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