Oil Trading Alert: Stronger Greenback and Its Implications for Crude Oil

By: Nadia Simmons & Przemyslaw Radomski | Thu, Sep 4, 2014
Print Email

Oil Trading Alert originally published on September 3, 2014, 9:32 AM


 

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

On Tuesday, crude oil lost 2.70% as the combination of disappointing Chinese data and stronger U.S. dollar weighed on the price. Because of these circumstances, the commodity bounced down the medium-term resistance zone and approached the recent lows. Will they withstand the selling pressure?

Yesterday's data showed that China's official manufacturing index dropped to 51.1 in August, while the HSBC manufacturing index ticked down to 50.2. These disappointing numbers fueled worries over demand in the world's second-largest oil consumer and affected negatively the price of light crude.

Additionally, later in the day, the Institute for Supply Management reported that its manufacturing purchasing managers' index increased to 59.0 in August, beating expectations of a drop to 56.8. Although these bullish figures confirmed that the U.S. economy continues to show signs of improvement, they also supported the greenback, which made crude oil less attractive on dollar-denominated exchanges. This was bearish for the commodity and pushed it to slightly above the recent lows. What's next? Let's check the technical picture of light crude and find out (charts courtesy of http://stockcharts.com).

Light Crude Oil Weekly Chart
Larger Image

The weekly chart clearly shows that the strong resistance zone created by the previously-broken 200-week moving average and the rising, long-term support line, successfully stopped further improvement and the commodity reversed, declining sharply to around the recent low. This is a bearish signal, which suggests that if crude oil moves lower, the last week's upswing will be nothing more than a verification of the breakdown and we'll see a test of the strength of the Jan low of $91.24. At this point, it's worth noting that although the CCI and Stochastic Oscillator are oversold, they didn't generate buy signals, which could support oil bulls at the moment.

Will the very short-term chart give us more clues about future moves? Let's check.

Light Crude Oil Daily Chart
Larger Image

Quoting our yesterday's summarize:

(...) Although the very short-term picture suggests further improvement as light crude remains above the upper line of the consolidation and buy signals are still in play, it seems to us that this medium-term resistance zone could trigger a pullback in the coming day (or days). If this is the case, we may see a comeback to the upper border of the formation.

As you see on the daily chart, oil bears not only realized the above-mentioned scenario, but also managed to push the commodity lower and light crude approached the recent lows. Taking this fact into account, you're probably wondering whether they withstand the selling pressure or rather we'll see a test of the 2014 low.

From the technical point of view, this is the point from where crude oil should go north (at least later today) as the proximity to the support level will likely encourage some investors to push the buy button. But is this the right place to open long positions? Not really. The reason? Firstly, light crude is still trading in the declining trend channel, which means that even if we see a rebound from here, oil bulls will have to push the price above the upper line of the formation before we'll see another sizable upward move. Secondly, as we mentioned earlier, crude oil still remains below the strong medium-term resistance zone, which keeps gains in check. Finally, when we take a closer look at the daily chart, we clearly see that the recent corrective upswing is much smaller than the previous one, which means that oil bulls are even weaker than they were in July. Therefore, in our opinion, the downward trend is not threatened at the moment and another attempt to move lower should not surprise us. If this is the case, we think that the next downside target will be the combination of the 2014 low and the lower border of the declining trend channel around $91.24-$91.50.

Summing up, the medium-term outlook remains bearish and in our opinion opening long positions is currently not justified from the risk/reward perspective. Yesterday, crude oil reversed and declined sharply, approaching the recent lows and as we have pointed out before, although we may see a rebound from here in the very short-term (especially if the EIA weekly report on crude oil inventories will be bullish for the commodity), it will not serve as a buy signal unless the medium-term resistance is taken out. We'll keep you informed.

Very short-term outlook: mixed
Short-term outlook: bearish
MT outlook: bearish
LT outlook: bullish

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
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

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

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/