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.
Although crude oil moved lower after the market’s open, the commodity rebounded in the following hours as investors reacted to attacks against ISIS in Syria. As a result, light crude bounced off the barrier of $40 and increased above $42, but did this move change anything in the short-term picture of the commodity?
On Sunday, France launched a wave of attacks against ISIS in Syria in response to Friday's terrorist attacks in Paris. This news fuelled worries that the conflict in Syria may spread to other countries in the Middle East and pushed the commodity to an intraday high of $42.25. Did this move change anything in the short-term picture of the commodity? Let’s examine charts and find out (charts courtesy of http://stockcharts.com).
Quoting our previous Oil Trading Alert:
(…) Taking into account, the proximity to the barrier of $40, we could see a rebound from here in the coming day(s). Nevertheless, we believe that as long as the commodity remains below $42.58-$43.21 all upswings would be nothing more than a verification of the breakdown under the blue zone.
Looking at the daily chart, we see that oil bears pushed crude oil lower and re-tested the strength of the barrier of $40 after the market’s open. Despite this drop, the support withstood the selling pressure and light crude rebounded as we had expected. With this upswing, the commodity climbed to the black resistance line, which could be the neck line of a potential head and shoulders formation. If this is the case and crude oil declines from here, we’ll see a drop below $40 in the coming days. At this point, it is worth noting that if we see such price action, the current decline will likely accelerate, which will likely translate to a test of the Aug lows.
Nevertheless, taking into account the above-mentioned bearish pattern, we may see a decline even to around $35.50, where the size of the downward move will correspond to the height of the formation.
Summing up, crude oil re-tested the barrier of $40 and rebounded. Despite this move, the commodity remains below the blue resistance zone and a potential head and shoulders formation is underway, which suggests that further deterioration in the coming weeks is more likely than not and short positions (which are already profitable as we opened them when crude oil was trading around $46.69) 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 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
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