Trading position (short-term; our opinion): Short positions with a stop-loss order at $54.12 and initial (!) target price at $35.72 are justified from the risk/reward perspective.
Crude oil moved lower once again on Friday, but the move was not very significant. To a large extent, the price of crude oil remains in a declining consolidation, which makes one – at the first sight – think that the situation is unclear. From the long-term point of view, however, the situation is much clearer and it seems that there is a significant profit potential on the current trade.
Let’s take a look at the charts (charts courtesy of http://stockcharts.com).
Quoting our previous commentary:
(…) crude oil extended losses and reached the blue support zone (based on the Jan lows) and the previously-broken black support line (based on Jan and Mar weekly closing prices), which could trigger a rebound from here – similarly to what we saw in the previous week.
Looking at the daily chart, we see that the situation developed in line with the above scenario and light crude moved sharply higher yesterday. But did this one-day rally change anything in the short-term picture? Not really. The reason? As you see on the daily chart, despite yesterday’s move, the commodity remains under the 50-day moving average. Additionally, this upswing didn’t materialize on huge volume (compared to what we saw in the previous week), which suggests that oil bulls may be not as strong as it seems at the first glance. On top of that, sell signals generated by the CCI and Stochastic Oscillator remain in place, supporting oil bears and suggesting lower prices in the coming days.
The above remains up-to-date. The thing that we can add today is a small note about volume. The volume was higher during Thursday’s rally than during Friday’s decline, but please note that this is not something that necessarily has bullish implications. The same thing happened in early June, mid-July and late July and in all these cases no strong rallies followed. Conversely, in the first case crude oil continued to trade sideways after which it declined and in the last 2 cases it declined shortly.
There were no changes in the long-term picture and our previous comments remain up-to-date:
From this perspective, we see that although crude oil bounced off the blue support zone (reinforced by the blue support line), the commodity is still trading under the 38.2% Fibonacci retracement level and the upper black line (a potential right shoulder of the head and shoulders formation), which suggests that further deterioration is just around the corner.
Summing up, the outlook for crude oil remains bearish and it will most likely remain the case at least as long as crude oil remains below the August high. Therefore, we believe that short positions (which are already profitable as we entered them when crude oil was at about $46.68) continue to be justified from the risk/reward point of view.
Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: bearish
LT outlook: mixed with bearish bias
Trading position (short-term; our opinion): Short positions with a stop-loss order at $54.12 (yes, that far as the medium-term outlook is unlikely to change as long as crude oil stays below the declining medium-term resistance line) and initial (!) target price at $35.72 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
Gold & Silver Trading Alerts
Forex Trading Alerts
Oil Investment Updates
Oil Trading Alerts
