Oil Trading Alert: Oil Bears Are Still in Charge

By: Przemyslaw Radomski & Nadia Simmons | Wed, Aug 20, 2014
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Oil Trading Alert originally published on Aug 20, 2014, 10:44 AM


 

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

On Tuesday, crude oil lost 2.10% as worries over conflicts in Ukraine and Iraq waned. As a result, light crude dropped to its lowest level since Jan 21 and slipped below an important support area, hitting an intraday low of $94.26. Will the commodity correct to $93 per barrel in the near future?

Yesterday, the U.S. Commerce Department showed that the number of building permits issued in July jumped 8.1% to 1.052 million units (beating expectations for a 2.5% increase) and U.S. housing starts soared by 15.7% last month to hit 1.093 million units (well above expectations for an increase of 8.6%). Additionally, the U.S. CPI rose 0.1% in the previous month, while core consumer prices (without food and energy costs) increased by 0.1% last month, missing expectations for a 0.2% gain, but the year-on-year rate came in at 1.9%. Despite these bullish numbers, the price of light crude declined to almost eight month low as concerns over tensions in Ukraine and Iraq eased.

How much more room to decline does the commodity have? Let's check the technical picture and find out (charts courtesy of http://stockcharts.com).


Larger Image

The situation in the medium term has deteriorated significantly as crude oil declined below its major support levels - the 200-week moving average and the rising, long-term support line. Although this is a strong bearish signal, the week is not over yet. This means that we may see a rebound and invalidation of the breakdown (similarly to what we saw in June 2012) - especially when we take into account the fact that the size of the current correction corresponds to the height of the blue triangle, which could reduce the selling pressure and trigger an upswing in the near future. Nevertheless, if the commodity closes this week under these two important support levels, we'll see further deterioration and a drop to the next one - the January low of $91.24.

What can we infer from the daily chart? Let's check.


Larger Image

From this perspective we see that oil bears didn't give up and broke not only below the lower border of the consolidation, but also under the green support zone. At the first glance this is a very strong negative signal, which suggests further deterioration and a drop to the next Fibonacci retracement level around $93.

Nevertheless, when we take a closer look at the above chart, we can see several positive factors, which make the situation less bearish. Firstly, there are clearly visible positive divergences between all three indicators and the price of light crude. Secondly, the size of the volume that accompanied the decline doesn't confirm the strength of oil bears. As you can see on the above chart, the volume was tiny. This tells us that the selling pressure waned and suggests that we may see a reversal in the coming day (or days). Finally, with yesterday's downswing crude oil approached the bottom of the correction that we saw in January, which serves as support and could encourage oil bulls to act.

Summing up, the most important event of yesterday's session was a drop below the green support zone, created by two very important Fibonacci retracements. Although this is a bearish development, positive divergences (between all three indicators and the price of light crude) and the size of the volume suggest that we may see a reversal in the coming day (or days). Nevertheless, as long as there are no more valuable clues about the direction of future moves, staying on the sidelines waiting for another profitable opportunity is the best choice.

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

Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective at the moment, but we will keep you informed should anything change.

Thank you.

 


 

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

Nadia Simmons

Author: Nadia Simmons

Nadia Simmons
Sunshine Profits.com
Forex & Oil Trading Strategist
Forex Trading Alerts
Oil Investment Updates
Oil Trading Alerts

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

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