oil price trading

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Will Consolidation Help Oil Bulls?

October 29, 2018, 9:30 AM Nadia Simmons

Trading position (short-term; our opinion): None positions are justified from the risk/reward perspective.

Re-test of the lower line of the trend channel, invalidation of the breakdown under one of the moving averages and positive weekly closure – this is how we can summarize the last session of the previous week. What are the implications of these events?

Let’s take a look at the charts below (charts courtesy of http://stockcharts.com).

Light Crude Oil - Continuous Contract Weekly

Light Crude Oil - Continuous Contract Daily

On Friday, we wrote the following:

(…) oil bulls took the commodity higher (as we had expected), which resulted in an invalidation of the earlier breakdown under the lower border of the blue rising trend channel.

(…) Thanks to Thursday’s increase the commodity invalidated the earlier breakdown below the lower line of the very short-term red declining trend channel, which suggests that the bulls may no longer be as weak as it may seem.

(…) despite the above-mentioned improvements (two invalidations), we think that a bigger move to the upside will be more likely and reliable only if the commodity closes today’s session inside both trend channels (the medium-term blue rising trend channel and the very short-term declining one).

Until this time, one more downswing below the lower border of the very short-term red trend channel can’t be ruled out.

From today’s point of view, we see that the situation developed in line with our assumptions and crude oil declined after the market’s open, re-testing the lower border of the very short-term red trend channel just to rebound and close the day above the previously-broken 200-day moving average.

In this way, the commodity invalidated one more of the earlier breakdowns, increasing the probability of further improvement in the coming week. This scenario is also reinforced by the above-mentioned invalidation of the breakdown under the lower border of the blue rising trend channel seen on the weekly chart, rising volume during Friday session (compared to what we saw a day earlier) and the current position of the daily indicators (the Stochastic Oscillator generated a sell signal, while the CCI is very close to doing the same).

If this is the case and the price of black gold moves higher from current levels, we’ll likely see a test of the upper border of the red declining trend channel and the 38.2% Fibonacci retracement in the following days (we marked this initial upside target with a green ellipse on the daily chart).

Nevertheless, this scenario will be more likely and reliable if we see at least one more daily closure above the 200-day moving average and the CCI generates a buy signal. Until this time another re-test of the strength of the lower line of the red channel can’t be ruled out. As always, we’ll keep you - our subscribers - informed should anything change.

Trading position (short-term; our opinion): None positions are justified from the risk/reward perspective, however, if we see more signs of the bulls’ strength we’ll consider opening long positions. Stay tuned.

Thank you.

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

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