Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
On Thursday, crude oil lost 0.42% as uncertainty around a meeting between OPEC and non-OPEC oil producers later this month weighed on investors’ sentiment. As a result, light crude closed the day slightly above $38. What’s next?
Yesterday, crude oil gave up some gains after rumors that the meeting between oil producers to discuss an output freeze on March 20 was unlikely to take place as Iran didn’t accept the proposal so far. Thanks to these circumstances, light crude closed the day 46 cents below an intraday high. What’s next? Let’s take a look at the charts and find out (charts courtesy of http://stockcharts.com).
Based only on yesterday's closing prices, we clearly see that although crude oil moved slightly higher after the market’s open, the 50% Fibonacci retracement stopped further improvement, triggering a pullback, which means that what we wrote yesterday remains up-to-date:
(…) the red declining resistance line (based on the Sep 29, Jun 22 and Oct 12 weekly closing prices) continues to keep gains in check.
(…) light crude came back above the red horizontal line (based on the Aug low), the late Dec and Jan highs and tested the strength of the 50% Fibonacci retracement (based on the Oct-Feb downward move). Although this is a positive signal, we should keep in mind that the CCI is overbought, while the sell signal generated by the Stochastic Oscillator remains in place, supporting oil bears. Additionally, the barrier of $40 is quite close, which suggests that the space for further gains may be limited and reversal is just around the corner.
Nevertheless, earlier today, the IEA, said that non-OPEC output would fall by 750,000 barrels per day (bpd) in 2016 compared to its previous estimate of 600,000 bpd. Additionally, U.S. production alone would decline by 530,000 bpd in 2016. Thanks to this news, crude oil futures extended gains in a pre-market trading, hitting a fresh high of $38.95, which suggests that the commodity could also move higher after the market’s open and even approach the barrier of $40 later in the day (especially if today’s Baker Hughes report would be bullish).
Summing up, the red resistance zone (marked on the daily chart) and the red resistance line (seen on the weekly chart) continues to keep gains in check (in terms of daily closing prices). Additionally, the current position of the indicators and the proximity to the psychologically important barrier of $40 suggests that reversal and lower values of the commodity are just around the corner.
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: mixed
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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