Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.

On Monday, light crude lost 1.30% as worries over another increase in crude oil inventories to record highs affected negatively investors’ sentiment. As a result, the commodity closed the day under $39 and approached important support lines. What’s next?

Let’s examine charts and find out (charts courtesy of http://stockcharts.com).

On Thursday, we wrote the following:

(…) yesterday’s decline took the commodity under the green support line (based on the Feb and March 14 lows) and the psychologically important barrier of $40, invalidating earlier breakout above this level. Taking these negative factors into account and combining them with sell signals generated by all indicators, we think that further deterioration in the coming week is very likely.

On the daily chart, we see that oil bears pushed the commodity lower as we had expected. As you see, although crude oil came back above $40 yesterday, this improvement was very temporary as oil bulls didn’t manage to hold gained levels. As a result, light crude reversed and declined below $39, which suggests a re-test of the green support zone (around $38.09-$38.39) or even a drop to the medium-term red declining support line (currently around $37.85) marked on the chart below.

Nevertheless, in our opinion, further deterioration will be more likely and reliable if we see an invalidation of the breakout above this important support line. From this perspective we also see that crude oil is trading in a blue consolidation, which suggests that a drop under the lower line of the formation will accelerate declines.

Summing up, crude oil moved lower once again, which suggests a re-test of the green support zone (around $38.09-$38.39) or even a drop to the medium-term red declining support line (currently around $37.85). However, in our opinion, further declines would be more likely if the commodity drops under the lower border of the blue consolidation marked on the weekly chart.

Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed with bearish bias
MT outlook: bearish
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.

As a reminder – “initial target price” means exactly that – an “initial” one, it’s not a price level at which we suggest closing positions. If this becomes the case (like it did in the previous trade) we will refer to these levels as levels of exit orders (exactly as we’ve done previously). Stop-loss levels, however, are naturally not “initial”, but something that, in our opinion, might be entered as an order.

Since it is impossible to synchronize target prices and stop-loss levels for all the ETFs and ETNs with the main market that we provide this level for (crude oil), the stop-loss level and target price for popular ETN and ETF (among other: USO, DWTI, UWTI) are provided as supplementary, and not as “final”. This means that if a stop-loss or a target level is reached for any of the “additional instruments” (DWTI for instance), but not for the “main instrument” (crude oil in this case), we will view positions in both crude oil and DWTI as still open and the stop-loss for DWTI would have to be moved lower. On the other hand, if crude oil moves to a stop-loss level but DWTI doesn’t, then we will view both positions (in crude oil and DWTI) as closed. In other words, since it’s not possible to be 100% certain that each related instrument moves to a given level when the underlying instrument does, we can’t provide levels that would be binding. The levels that we do provide are our best estimate of the levels that will correspond to the levels in the underlying assets, but it will be the underlying assets that one will need to focus on regarding the sings pointing to closing a given position or keeping it open. We might adjust the levels in the “additional instruments” without adjusting the levels in the “main instruments”, which will simply mean that we have improved our estimation of these levels, not that we changed our outlook on the markets.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief

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