Trading position (short-term; our opinion): Short position with a stop-loss order at $68.54 and the initial downside target at $58.71 is justified from the risk/reward perspective.
After a modest Friday's move, crude oil made quite an upswing on Monday. Could it be connected to the U.S. sanctions on Iran, those waivers ending? How far can the bulls make it in such an environment? Hold on, there're some formidable obstacles just ahead. Let's tell you about them precisely.
Let's take a closer look at the chart below (charts courtesy of http://stockcharts.com).
Crude oil closed last week just above the 61.8% Fibonacci retracement. Immediately apparent is the low volume that marked the upswing: it could signal potentially decreasing buyers' strength this week. Earlier on Monday and today, crude oil has been building on last week's price increase.
Let's see yesterday's upswing from the daily perspective. It took black gold up to the red resistance zone, marking a fresh peak in the process. It suggests however, that we could see a reversal and lower oil prices this week.
This is especially the case when we factor in bearish divergences between daily indicators and the commodity itself. Additionally, there's the sell signal generated by the Stochastic Oscillator, which continues to support the sellers.
If this is the case and crude oil declines from current levels, the first downside target will be the previously-broken upper border of the red rising wedge. If it is broken, the way to the lower border of the formation would be likely open.
Summing up, oil price is still trading below the red resistance zone. The daily indicators (forming bearish divergences, Stochastics on the sell signal) continue to support the sellers. Lower oil prices remain probable and the short position justified from the risk-reward point of view.
Trading position (short-term; our opinion): Short position with a stop-loss order at $68.54 and the initial downside target at $58.71 is justified from the risk/reward perspective.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
