Trading position (short-term; our opinion): Short positions (with a stop-loss order at $54.15 and the initial downside target at $45.55) are justified from the risk/reward perspective.
On Friday, crude oil rebounded and erased some of earlier losses, invalidating the earlier breakdown under two moving averages and approaching the barrier of $50. Is this increase just a verification of the breakdown or something more?
Let’s take a closer look at the charts and find out what are they telling about future moves (charts courtesy of http://stockcharts.com).
On Friday, we wrote the following:
(…) it is worth keeping in mind that light crude slipped to the long-term green support line based on the August and November lows, which suggests that we may see a small (compared to yesterday’s decline) rebound before another move to the downside.
From today’s point of view, we see that the situation developed in line with the above scenario and oil bulls pushed the commodity higher. Thanks to Friday’s rebound light crude came back above the 50- and 200-day moving averages, which is a positive event. However, if we take a closer look at the size of volume, we see that it was much smaller than s day earlier, which suggests that oil bulls are weaker than their opponents at the moment.
Additionally, the sell signals generated by the daily indicators remain in place, supporting oil bears and lower prices of the black gold. If this is the case and crude oil moves lower, the first downside target will be the long-term green support line based on the August and November lows (currently around $48.53). If crude oil drops under this important support, the next target for oil bears will be around $45.55, where the previously-broken lower border of the red declining trend channel is.
Summing up, short positions are justified as Friday’s increase materialized on smaller volume than earlier decline, which doesn’t confirm oil bulls’ strength, suggesting lower prices of the black gold in the coming days.
Very short-term outlook: berish
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: mixed
Trading position (short-term; our opinion): Short positions (with a stop-loss order at $54.15 and the initial downside target at $45.55) 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.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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