Oil Trading Alert: Crude Oil - Breakdown or Trap?

By: Nadia Simmons & Przemyslaw Radomski | Tue, Jul 1, 2014
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Oil Trading Alert originally published on June 30, 2014, 8:00 AM


 

Although crude oil moved little higher on Friday, hitting an intraday high of $106.19, the commodity reversed and posted its second weekly loss in three weeks as the immediate threat of losing Iraqi oil supply due to violence in the country faded. As a result, light crude closed the week below the medium-term support. Will it trigger further deterioration?

The price of crude oil has risen recently as fears that an insurgency in northern Iraq would spread to the south and disrupt the nation's oil production. However, the insurgency hasn't reached the southern part of the country where the major production and export facilities are located, and Iraq's oil output hasn't been affected, which encouraged oil investors to sell the commodity for profits.

Additionally, although the Thomson Reuters/University of Michigan consumer sentiment index increased to 82.5 in June from 81.2 in May (beating expectations for a 82.2 reading), investors didn't get rid of concerns over the outlook for the wider economic recovery as Wednesday's disappointing U.S. gross domestic product data continued to weigh. Because of these circumstances, crude oil lost 0.84% in the previous week, declining below the medium-term support line. Will this bearish event trigger further deterioration? Let's check the technical picture of crude oil (charts courtesy of http://stockcharts.com).

Crude Oil Weekly Chart
Larger Image

As you see on the above chart, crude oil closed the previous week below the medium-term black rising line, which suggests further deterioration. If this is the case, and oil bulls do not invalidate the breakdown, we'll see a downward move to around $102, where the declining black medium-term support line and the 50-week moving average are.

Having discussed the medium-term picture, let's take a closer look at the daily chart.

Crude Oil Daily Chart
Larger Image

Looking at the above chart, we see that the situation in the very short-term hasn't changed much as crude oil is still trading in the narrow range between the resistance zone (created by the 76.4%-78.6% Fibonacci retracement levels and the medium-term black resistance line) and the green support zone (based on the March, April, June 10 highs and recent lows). Therefore, what we wrote in our previous Oil Trading Alert is up-to-date:

(...) If this support zone holds, we'll see another corrective upswing to around $107.30-$107.68, where the resistance zone is. On the other hand, if oil bears do not give up and show their claws one again, we will see a breakdown in the nearest future and a correction to at least the previously-broken blue support line (currently around $104.40). Please keep in mind that sell signals generated by the indicators remain in place, supporting the bearish scenario.

Summing up, although crude oil moved little higher, the overall situation remains unchanged as the commodity is still trading in the narrow range. In our opinion, as long as there is no breakdown below the green support zone (or breakout above the resistance zone) another sizable move is not likely to be seen. Nevertheless, taking into account the current position of the indicators (and the breakdown below the black support line on the weekly chart), we think that further deterioration and lower values of crude oil are still ahead us.

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

Trading position (short-term; our opinion): Short. Stop-loss order at $109.20.

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
Gold & Silver Investment & Trading Website - SunshineProfits.com

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.

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

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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