Oil Trading Alert: Dark Clouds Over Crude Oil

By: Nadia Simmons & Przemyslaw Radomski | Mon, Jul 7, 2014
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Oil Trading Alert originally published on July 7, 2014, 8:03 AM


 

On Thursday, crude oil declined to its lowest levels since June 10 as situation in Libya overshadowed U.S. economic data. As a result, light crude closed the day below the medium-term support line. Will this event encourage oil bears to push the price lower?

On Thursday, the U.S. Department of Labor reported that non-farm payrolls rose by 288,000 in June, beating expectations for an increase of 212,000. Meanwhile, the unemployment rate dropped to 6.1% from 6.3% in May. Although these stronger-than-expected employment data indicated growing demand for petroleum products, crude oil didn't increase sharply, instead, we noticed a 0.14% loss and a daily close slightly above $104 per barrel. What happened?

As we mentioned earlier, the commodity declined to its lowest levels since June 10 on expectations that a deal between the Libyan government and rebels could bring halted oil exports back to the global markets. On Thursday, oil officials said that Libya's National Oil Co. may formally lift a ban on exports from two eastern oil terminals. What impact could it have on the oil market? If we see such action, a resumption of Libyan exports would reduce concerns that an insurgency in Iraq could lead to supply disruptions there and will likely push the price of light crude lower. However, we should keep in mind that some previous pledges to let Libyan exports restart haven't been respected or were followed by new interruptions. Therefore, we think that as long as we do not see shipments from these ports, we should still keep an eye on the current situation in Iraq and also focus on the technical picture of crude oil. So, let's find out what can we infer from the charts (charts courtesy of http://stockcharts.com).

$WTIC Light Crude Oil - Spot Price (EOD) CME
Larger Image

From this perspective, we see that crude oil extended losses in the previous week and declined to the previously-broken upper line of the blue triangle. If this support line withstand the selling pressure, we'll see a rebound from here and a corrective upswing to the recent highs. However, if it is broken, crude oil will extend the current correction and the initial downside target will be around $101.60, where the June low is. At this point it's worth noting that slightly below this level is a strong support zone created by the 50-week moving average (currently at $101.26) and the lower line of the trend channel (and lower border of the blue triangle), which may pause further deterioraion. Please note that the position of the indicators supports the bearish scenario at the moment as sell signals remain in place.

Once we know the medium-term picture, let's check the very short-term outlook.

$WTIC Light Crude Oil - Spot Price (EOD) CME
Larger Image

As you see on the daily chart, crude oil declined below the medium-term blue line (the upper line of the triangle that we saw on the weekly chart). Although this is a strong bearish signal, so far, the breakdown is not confirmed. On one hand, if oil bulls do not invalidate it and crude oil moves lower, the initial downside target will be the 50-day moving average (currently at $103.27). At this point, it's worth noting that this area is supported by the 50% Fibonacci retracement (based on the Apr.-June rally). Therefore, if it holds, we'll likely see an attempt to move above the blue resistance line. However, if it is broken, the next target for oil bears will be around $102.14, where the 61.8% Fibonacci retracement is. Please keep in mind that sell signals generated by the indicators remain in place, supporting the bearish case at the moment.

Summing up, crude oil moved lower and broke below important medium-term support line, which is a strong negative signal. Taking this fact into account and combining it with the current position of the indicators, we remain bearish and think that further correction and lower values of crude oil are still ahead us. Therefore, short positions (which are already profitable) are still justified from the risk/reward perspective.

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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