Oil Trading Alert: Crude Oil

By: Nadia Simmons & Przemyslaw Radomski | Mon, Sep 8, 2014
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Oil Trading Alert originally published on September 8, 2014, 8:38 AM


 

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

On Friday, crude oil lost 1.22% as disappointing jobs report and ceasefire agreement between Ukraine and pro-Russian separatists weighed on the price. As a result, light crude extended losses and approached the recent lows. Will we see a test of the strength of the Jan low in the coming days?

On Friday, the Department of Labor reported that the U.S. economy added 142,000 jobs in August, missing expectations for a 225,000 increase. Additionally, the report showed that the U.S. unemployment rate ticked down to 6.1% last month, from 6.2%, but in line with expectations. These disappointing numbers pointed to a potential weakening of the
economy, fueling fears that the world's largest oil consumer may demand less energy and fuel.

On top of that, Ukraine signed a ceasefire deal with pro-Russia rebels, which was also bearish for the commodity (as a reminder, Russia is the world's second-largest exporter and such agreemnt eased fears over the instability in the eastern Ukraine and disruption of Russian oil exports). In this environment, crude oil hit an intraday low of $92.86, approaching the recent lows. Will we see further deterioration in the coming days? (charts courtesy of http://stockcharts.com).

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

From this perspective, we see that although crude oil moved lower in the previous week, losing 2.51%, the situation in the medium-term hasn't changed much as crude oil is still trading in a consolidation (marked with blue) between the recent lows and the strong resistance zone created by the previously-broken 200-week moving average and the rising, long-term support line. Therefore, our last commentary is up-to-date:

(...) we still think that as long as there is no invalidation of the breakdown below these levels, the medium-term outlook remains bearish (..) if crude oil drops below the recent lows, 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.

Can we infer something more from the very short-term chart? Let's check.

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

In our Friday's summary, we wrote the following:

(...) the major driving force behind today's move might be the U.S. employment report. If it is bullish, the U.S. dollar will strengthen, which may push the commodity lower. On the other hand, if it's bearish, it will likely fuel worries over the strength of the recovery in the labor market, which may also translate into lower price of crude oil. Taking all the above into account, it seems that the move to the downside is more likely at the moment.

As you see on the above chart, the situation developed in line with the above-mentioned scenario and crude oil declined, erasing the gains that had made on Wednesday and approaching the recent lows. Despite this drop, the overall situation in the very short-term hasn't changed much as light crude is trading in a consolidation (marked with blue) between Tuesday' s high of $95.91 and low of 92.68. Therefore, our last commentary is still up-to-date:

(...) we think that as long as there is no breakout above the upper line of the formation (or a breakdown below the lower border) another bigger move is not likely to be seen. (...) What could happen if currency bears show their claws once again? Without a doubt, the initial downside target will be the lower line of the formation. If it's broken, the commodity will test the strength of the lower border of the declining trend channel, which intersects the Jan low of $91.24 at the moment.

Please keep in mind 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.

Summing up, crude oil extended losses, which approached the commodity to the lower border of the consolidation, increasing the risk of a breakdown. Taking this fact into account, we are convinced that opening long positions is currently not justified from the risk/reward perspective. At this point, it's worth noting that we do not recommend opening short positions either as the space for further declines might be limited (especially when we factor in the fact that slightly below the Jan low is also the 61.8% Fibonacci retracement level based on the Jun 2012-Aug 2013 rally, which stopped the correction at the beginning of the year).

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

 


 

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
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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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