Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
Although crude oil extended losses after the market’s open and hit a fresh multi-month low, the key support line continues to keep declines in check. Will it finally encourage oil bulls to push the commodity higher?
Yesterday, crude oil moved lower once again and hit a fresh multi-month low of $40.50 as Wednesday’s unexpected inventory build (the highest weekly increase in nearly four months) continued to weigh on investors’ sentiment. As a result, the commodity re-tested its key support line and approached the next psychologically important barrier of $40. Is it enough to trigger a rebound in the coming days? (charts courtesy of http://stockcharts.com).
Quoting our previous alert:
(…) the commodity declined to its key support – the red declining line and closed the day on it. Additionally, the size of volume that accompanied yesterday’s decline was significant, which suggests that another test of the red support line is more likely than not.
From today’s point of view we see that oil bears pushed crude oil lower as we had expected. In this way, light crude re-tested the red declining support line and rebounded – similarly to what we saw in previous days. Despite this move, the commodity is still trading under the March low and well below the green and blue resistance lines, which suggests that another downswing can’t be ruled out.
Therefore, what we wrote a week ago is still up-to-date:
(...) Please consider the way crude oil declined in January 2015. Black gold declined sharply at first, but the final days (and weeks) of the decline were not sharp – crude oil declined slowly and the thing that was indeed sharp, was the corrective upswing that we saw in the final part of the month. We wouldn’t want to be holding short positions should something like that happened once again and the risk of such action is not negligible.
Finishing today’s alert, please keep in mind that if the commodity closes this week below the March low or declines below the key support line on sizable volume, we’ll consider re-entering short positions. Until this time, in our opinion, the risk is too high.
Summing up, crude oil moved lower once again, but the commodity remains above its key support line. Therefore, in our opinion, as long as there is no confirmed breakdown (on sizable volume) below the red declining support line (or a weekly close under the March low) the outlook for crude oil is not bearish enough to justify opening another short positions. We will continue to monitor the market, look for another profitable trading opportunity and report to you accordingly.
Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed with bearish bias
LT outlook: mixed with bearish bias
Trading position (short-term; our opinion): No positions 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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