Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
On Wednesday, crude oil gained 3.20% after better-than-expected EIA data. Thanks, to these circumstances, light crude extended gains, invalidating earlier breakdowns. Is it enough to push the commodity higher in the coming days?
Yesterday’s EIA report showed that gasoline inventories increased by 1.4 million barrels and distillate fuel inventories increased by 1.8 million barrels. Additionally, crude oil inventories at the Cushing Oil Hub rose by 375,000. Despite these numbers, the report also showed that U.S. crude oil inventories decreased by 4.94 million barrels for the week ending on April 1, which was the first important drop since mid-Jan. Thanks to this decrease, light crude extended gains, invalidating earlier breakdowns and closing the day slightly below $38. Is it enough to push the commodity higher in the coming days? Let’s examine charts and find out (charts courtesy of http://stockcharts.com).
Yesterday, we wrote the following:
(…) oil bulls (…) pushed light crude above the lower border of the blue declining trend channel, invalidating earlier breakdown. This positive signal triggered further improvement and (…) we think that light crude will extend gains in the coming day and we’ll see (at least) a test of the upper line of the blue declining trend channel (currently around $37.65).
On the daily chart, we see that the situation developed in line with the above scenario and crude oil reached our upside target. As you see, yesterday’s increase materialized on significant volume (compared to earlier declines), which confirms oil bulls’ strength. On top of that, the CCI and Stochastic Oscillator generated buy signals, which suggests that further improvement is just around the corner. Nevertheless, before we see such price action, currency bears may push the commodity little lower as the upper border of the trend channel will likely encourage some day traders to take profits off the table.
Having said the above, let’s examine the weekly chart and find out how this increase affected the medium-term picture.
The first thing that catches the eye on the above chart is an invalidation of the breakdown under the lower border of the blue consolidation. This positive signal triggered further improvement and crude oil climbed above the red declining line, invalidating earlier breakdown. These positive signals suggest further improvement. However, such price action will be more likely and reliable if the commodity increases above the red dashed declining line (currently around $38.40). Until this time pullback from current levels can’t be ruled out.
Finishing today’s alert, please note that if light crude erases some of recent gains, the initial downside target would be around $37.27, where the 23.6% Fibonacci retracement is.
Summing up, crude oil extended gains, invalidating earlier breakdown under the lower border of the consolidation (marked on the weekly chart) and the medium-term red declining line, which is a positive signal. However, with this upswing, light crude also reached the upper line of the blue declining trend channel, which could encourage oil bears to trigger a pullback from here in the coming day.
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed with bullish 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.
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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