Oil Trading Alert: Crude Oil - One Swallow Doesn't Make a Summer

By: Nadia Simmons & Przemyslaw Radomski | Wed, Jul 9, 2014
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Oil Trading Alert originally published on July 9, 2014, 9:12 AM


 

Yesterday, after 5 days of declines, we saw a corrective upswing, which took crude oil to an intraday high of $104.20. Did this show of "strength" invalidate any of bearish technical factors that we noticed in recent days?

Although crude oil moved higher after the market's open, this improvement was only very temporarily and light crude reversed as fears that military conflicts in the Middle East will disrupt supplies continued to wane. Additionally, oil investors also avoided the commodity ahead of the release of the Federal Reserve's minutes from its June policy meeting. Taking into account the fact that the above-mentioned circumstances had a negative impact on the price, let's check the technical picture of light crude. Are there any factors that could drive the price of crude oil higher in the near future? (charts courtesy of http://stockcharts.com).

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

From the medium-term perspective the situation hasn't change as crude oil still remains below the previously-broken upper line of the blue triangle, while sell signals generated by the indicators favor oil bears. Therefore, we are convinced that our last commentary is still up-to-date:

(...) 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.

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

Quoting our last oil Trading Alert:

(...) if (...) crude oil moves lower, the initial downside target will be the 50-day moving average (currently at $103.27). (...) 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.

Yesterday, the situation developed in line with the above-mentioned scenario as crude oil rebounded to the blue line after a drop to its downside target. As you see on the daily chart, despite this upswing, the overall situation hasn't changed much as light crude is trading in a narrow range between the medium-term resistance line and the support zone. If oil investors push the buy button and the commodity climbs above its nearest resistance later in the day, crude oil will invalidate the breakdown (which would be a strong positive signal) and we'll see an increase to the previously-broken green zone, which currently serves as resistance (around $105-$105.50). However, if oil bulls fail, we'll see another attempt to break below the support zone. If it happens, the next downside target 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, although crude oil bounced of its support zone, the previously-broken medium-term support/resistance line stopped further improvement. In our opinion, yesterday's move might be nothing more than a verification of the breakdown and if this is the case, we'll see another attempt to break below the 50% Fibonacci retracement and the 50-day moving average. Connecting the dots, we are still 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. We realize that keeping a short position when the market moves even a bit higher is not a pleasant thing to do, but let's keep in mind that the hardest investment decisions that one makes are often the most profitable ones.

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.

Copyright © 2013-2014 Sunshine Profits

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.

Copyright © 2009-2014 Przemyslaw Radomski, CFA

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