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

On Thursday, crude oil reversed and lost 2.08% as a broadly stronger dollar weighed on the price. In this environment, light crude slipped to the previously-broken May peak, approaching the barrier of $50. Will it withstand the selling pressure in the coming days?

Yesterday, the U.S. Department of Labor reported that the number initial jobless claims in the week ending June 4 dropped by 4,000, beating analysts’ forecasts and pushing the USD Index higher. As a result, a broadly stronger greenback made crude oil less attractive for buyers holding other currencies, which resulted in a drop to slightly above the barrier of $50. Will it withstand the selling pressure in the coming days? Let’s examine the daily chart and find out what can we infer from it (charts courtesy of http://stockcharts.com).

Quoting our yesterday’s alert:

(…) crude oil increased to the previously-broken medium-term green line, which may be a verification of earlier breakdown. If this is the case, the commodity will reverse and decline to the Oct high of $50.92 or the May 26 high of $50.21.

From today’s point of view, we see that oil bears pushed the commodity lower (as we had expected) and crude oil almost touched the May high. What’s next? We believe that our previous commentary will be the best answer to this question:

(…) If this area withstands the selling pressure, light crude will likely rebound and test yesterday’s high. However, if it is broken, we may see a drop to the blue support line based on the late May and Jun lows.

Finishing today’s alert, please note that the RSI generated a sell signal, while the CCI and Stochastic Oscillator are overbought and close to doing the same (particularly the latter), which suggests that further deterioration in the coming days is very likely – especially if the commodity drops under the barrier of $50 and invalidates earlier breakout above it.

Summing up, crude oil reversed and declined, slipping to the May peak and verifying earlier breakdown under the previously-broken medium-term green line, which is a negative signal that suggests further deterioration (especially when we factor in a sell signal generated by the RSI) and a test of the support line based on the late May and Jun lows (currently around $48.50) in the coming days.

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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