Oil Trading Alert: Crude Oil Meets Resistance Zone

By: Nadia Simmons & Przemyslaw Radomski | Tue, Jun 17, 2014
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Oil Trading Alert originally published on June 16, 2014, 10:50 AM


 

On Friday, crude oil extended gains and hit a fresh nine-month high, supported by the deteriorating situation in Iraq. Thanks to these circumstances, light crude climbed to its next resistance zone. Will oil bulls be strong enough to break it in the near future?

On Friday, crude oil rallied for a second session as Sunni militants continued their advance toward Baghdad, which fueled concerns that Iraq's ample oil production could be threatened. As we mentioned in our previous Oil Trading Alert, although most of Iraq's production is in the south of the country, far from the current violence, oil investors worry that the situation could quickly escalate and disrupt oil shipments. As a reminder, Iraq produced 3.6 million barrels of oil a day - its highest level since before the invasion in 2003. According to the U.S. Energy Information Administration, Iraq was the seventh-largest oil producer in the world last year, therefore, military activity in a large oil producer was bullish for crude oil and pushed the price well above $107 per barrel.

Despite this improvement, light crude reversed after U.S. President Barack Obama said he won't sent troops to Iraq, while the country is still exporting crude oil. Additionally, soft U.S. economic data pushed the price down as well. On Friday, official data showed that U.S. producer price inflation fell 0.2% in May, beating expectations for a 0.1% rise. Core producer price inflation (without food, energy and trade) slipped 0.1% last month, compared to expectations of 0.1% gain. On top of that, a preliminary report showed that the Thomson Reuters/University of Michigan consumer sentiment index fell to 81.2 this month from 81.9 in May, while analysts had expected the index to rise to 83.0 in June.

Can crude oil move higher without disturbing news from Iraq? Let's check the technical picture (charts courtesy of http://stockcharts.com).

Light Crude Weekly Chart
Larger Image

From this perspective, we see that crude oil almost touched the long-term declining line without breaking it. Therefore, what we wrote in our previous Oil Trading Alert is up-to-date:

(...) this important line is currently around $107.76 and reinforces the resistance zone (...) the CCI is overbought, while the Stochastic Oscillator approached the level of 80 (...). Connecting the dots, it seems that as long as there is no breakout above this key price level, another sizable move is not likely to be seen.

Having say that, let's zoom in our picture and focus on the very short-term changes.

Light Crude Daily Chart
Larger Image

Looking at the above chart, we see that crude oil extended gains and reached the resistance zone, hitting an intraday high of $107.68. As you see on the daily chart, this strong area stopped further improvement and the commodity reversed, therefore, our last commentary is still valid:

(...) the space for further growth might be limited in the near future. In our opinion, oil bulls could have a tough time breaking through the next resistance zone created by the 76.4% and 78.6% Fibonacci retracement levels (around $107.30-$107.75). The reason for such assumption is not only the fact that this is a strong resistance zone, which usually pauses (or even stops) further improvement, but also the conclusion which emerges from the long-term chart.

Please keep in mind that the RSI reached its highest level since the beginning of March, breaking above the level of 70, while the CCI and Stochastic Oscillator are overbought (additionally, there is a negative divergence between the latter and the price), indicating that correction is just around the corner. If this is the case, the initial downside target for oil bears will be the previously-broken medium-term black rising line (currently around $106.60), which stopped further deterioration on Friday. If it holds, we may see another attempt to break above the resistance zone. However, if it is broken, the current correction will accelerate and the commodity will find support around $104.55, where the upper line of the medium-term triangle (marked with blue) is.

Summing up, although crude oil moved higher, hitting a fresh nine-month high, the overall situation hasn't changed much as the commodity remains below the strong resistance zone created by the long-term declining line and two important Fibonacci retracement levels. As we have pointed out before, as there is no breakout above this key resistance, another sizable move is not likely to be seen and we may see a pullback in the coming days.

Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: mixed

Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective at the moment.

Thank you.

 


 

Nadia Simmons

Author: Nadia Simmons

Nadia Simmons
Sunshine Profits.com
Forex & Oil Trading Strategist
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Nadia Simmons

Nadia is a private investor and trader, dealing in currencies, commodities (mainly crude oil), and stocks. Using her background in technical analysis, she spends countless hours identifying market trends, major support and resistance zones, breakouts and failures. In her writing, she presents complex ideas with clarity that enables you to easily understand market changes, and profit on them. Nadia is the person behind Sunshine Profits' 3 premium trading services: Forex Trading Alerts, Oil Trading Alerts Alerts, and Oil Investment Updates.

All essays, research and information found above represent analyses and opinions of Nadia Simmons and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Nadia Simmons and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Nadia Simmons is not a Registered Securities Advisor. By reading Nadia Simmons's reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Nadia Simmons, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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Przemyslaw Radomski

Author: Przemyslaw Radomski

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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Przemyslaw Radomski

Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who takes advantage of the emotionality on the markets, and invites you to do the same.

His company, Sunshine Profits, publishes analytical software that anyone can use in order to get an accurate and unbiased view on the current situation.

Recognizing that predicting market behavior with 100% accuracy is a problem that may never be solved, PR has changed the world of trading and investing by enabling individuals to get easy access to the level of analysis that was once available only to institutions.

High quality and profitability of analytical tools available at www.SunshineProfits.com are results of time, thorough research and testing on PR's own capital.

PR believes that the greatest potential is currently in the precious metals sector. For that reason it is his main point of interest to help you make the most of that potential.

As a CFA charterholder, Przemyslaw Radomski shares the highest standards for professional excellence and ethics for the ultimate benefit of society.

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Disclaimer: All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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