Trading position (short-term; our opinion): Short positions (with a stop-loss order at $39.12 and an initial downside target at $33.66) are justified from the risk/reward perspective.
On Monday, crude oil reversed and declined under the Aug low once again, moving away from its important resistance line. As a result, light crude lost 3.75% and closed the day under $37. What’s next?
Let’s examine charts and find out (charts courtesy of http://stockcharts.com).
Yesterday, we wrote the following:
(…) crude oil not only came back above the Aug low (invalidating earlier breakdown), but also climbed to our next upside target. Although this is a positive signal, which suggests further improvement, we should keep in mind that the upper border of the red declining trend channel was strong enough to stop oil bulls at the beginning of the month and trigger a decline. Additionally, Thursday’s move materialized on tiny volume, which suggests that we may see a reversal in the coming day(s).
Looking at the charts, we see that the situation developed in tune with the above scenario and the upper border of the red declining trend channel triggered a decline, which took the commodity under the Aug lows. This is a negative signal, which suggests that our yesterday’s downside target would be in play in the coming days:
If (…) light crude moves lower from here, the initial downside target would be around $36, where the black support line base on the recent lows currently is.
Finishing today’s Oil Trading Alert, we would like to draw your attention to buy signals generated by the daily indicators, which suggests that another test of the Aug low and the strength of the upper line of the red declining trend channel can’t be ruled out.
Summing up, crude oil declined and came back below the Aug low, which suggests further deterioration in the coming days. Consequently, in our opinion, the medium-term trend remains down and lower values of the commodity are still ahead us. Therefore, short positions (with a stop-loss order at $39.12 and an initial downside target at $33.66) are justified from the risk/reward perspective.
Very short-term outlook: berish
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 $39.12 and an initial downside target at $33.66) 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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