Oil Trading Alert: Crude Oil under $48!

By: Nadia Simmons & Przemyslaw Radomski | Mon, Jul 27, 2015
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Oil Trading Alert originally published on Jul 27, 2015, 7:33 AM


 

Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective.

On Friday, crude oil extended losses after bearish Baker Hughes report. As a result, light crude lost 1.82% and hit a fresh multi-month low. Where will the commodity head next in the coming days?

On Friday, Baker Hughes showed in its weekly report that U.S. oil rigs increased by 21 to 659, which fuelled worries over another increase in domestic crude oil inventories and weighed on investors' sentiment. In this environment, light crude moved lower once again and closed the day below $48. Will we see a fresh multi-month low in the coming days? (charts courtesy of http://stockcharts.com).

Light Crude Oil Daily Chart
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Quoting our previous commentary:

(...) oil bulls didn't manage to hold gained levels, which resulted in a reversal and decline. With this downswing, light crude (...) hit a fresh multi-month low of $48.21, which means that lower values of light crude are just around the corner.

Looking at the daily chart, we see that the situation developed in line with the above scenario and light crude moved lower once again. Additionally, the commodity closed the day below $48, which means that the way to lower prices is open.

How low could the commodity go in the coming days? We believe that the best answer to this question will be the quote from our Friday's alert:

(...) the next downside target for oil bears would be around $47.05-$47.55, where the Apr 10 low (in terms of an intraday and opening prices) is. If it is broken, crude oil will likely test the lower border of the support zone created by the 76.4% and 78.6% Fibonacci retracement levels (around $46.72-$47.17).

What impact did this move have on the medium-term picture? Let's check.

Light Crude Oil Weekly Chart
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From this perspective, we see that crude oil closed another week under the red resistance zone created by the Feb highs, which confirms that the downtrend is still in cards. Additionally, sell signals generated by the indicators remain in place, supporting oil bears and further deterioration.

Finishing today's Oil Trading Alert we would like to draw your attention to the stocks-to-oil ratio once again.

SPX:WTIC Weekly Chart
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In our alert posted on Jul 17, we wrote the following:

(...) many times in the past (we marked them with green) local bottoms in the ratio have corresponded to local tops in crude oil. Therefore, when the ratio bounced off the 38.2% Fibonacci retracement (based on the entire rally) and moved sharply higher, we saw a decline in crude oil. Taking this fact into account, and combining it with buy signals generated by the indicators, we think that higher values of the ratio (and further declines in light crude) are just around the corner.

From today's point of view we see that the ratio extended gains (as we had expected), which translated to lower prices of crude oil. Taking into account buy signals generated by the indicators and rising volume in previous weeks (which confirms the direction of the major move), we think that the ratio will test the Mar high in the coming week(s). If this is the case, and we see such price action, light crude will extend losses hit a fresh multi-month low in near future.

Summing up, crude oil moved lower once again, hitting a fresh multi-month low and making our short positions even more profitable. Last week's decline confirms that the downtrend remains in place, suggesting lower values of the commodity in the coming days (especially when we factor in sell signals generated by the weekly indicators and the current picture of the stocks-to-oil ratio).

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

Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective.

 


 

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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