Oil Trading Alert: Will Crude Oil Drop Below $100?

By: Nadia Simmons & Przemyslaw Radomski | Mon, Jul 14, 2014
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Oil Trading Alert originally published on July 14, 2014, 7:48 AM


 

On Friday, crude oil lost 2.34% as fading concerns over supply disruptions encouraged investors to resume selling. In this way, the light crude fell to its lowest level in almost two months and slipped below important support lines. Will the psychological barrier of $100 stop further deterioration?

In our Oil Trading Alert posted on July 10, we wrote that Libya had announced the resumption of operations at its main oil fields, which resulted in a drop to a 5-week low. Although Thursday's upbeat U.S. jobless claims data supported the price and triggered a corrective upswing, investors figured out that the 340,000-barrels-a-day Sharara field could bring Libya's oil production close to one million barrels a day (three times the current level), which encouraged them to resume selling. As a result, light crude dropped below $101 per barrel. Will we see a test of the strength of the psychological barrier of $100? Let's check what can we infer from the technical picture (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 and dropped below the support zone created by the June low, the 50-week moving average and the lower border of the blue triangle. Although the breakdown is not confirmed, this drop is a strong bearish signal. If oil bulls do not push the price above this support/resistance area, we'll see further deterioration and the current correction will likely accelerate in the near future. If this is the case, the initial downside target will be around $98.74, where the April low is. However, taking into account the fact that sell signals remain in place, it seems that oil bears may push the commodity even lower (the next target would be around March low of $97.55).

Having say that, let's check the very short-term picture and find out where the nearest important support levels are.

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

Looking at the above chart, we see that crude oil reversed and fell sharply, dropping not only below the June low, but also under the long-term declining line and the blue support line. This is a strong bearish signal (especially when we factor in the fact that the commodity closed the day under this support area), which will likely trigger further deterioration in the nearest future. In this case, crude oil will test the strength of the psychological barrier of $100. If this key-level holds, we'll see a corrective upswing to around Thursday high of $103. However if it is broken, the commodity will drop to at least $99.92, where the 200-day moving average is. Please keep in mind that the CCI and Stochastic Oscillator are oversold, while the RSI dropped to its lowest level since January, which suggests that the space for further declines might be limited.

Summing up, the most important event of Friday's session was a breakdown below two important support lines. As we have pointed out before, this suggests that the commodity will test the strength of the psychological barrier of $100. If this key-level holds, we'll see a corrective upswing to around $103, but if oil bulls fail, the commodity will drop to at least $99.92, where the 200-day moving average is.

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

Trading position (short-term; 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
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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