Oil Trading Alert: Crude Oil - Sinking or Rebounding?

By: Przemyslaw Radomski & Nadia Simmons | Wed, Sep 2, 2015
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Oil Trading Alert originally published on Sep 2, 2015, 9:30 AM

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

On Tuesday, crude oil reversed and declined sharply as weak Chinese data weighed on investors' sentiment. As a result, the commodity approached support levels, but will they encourage oil bulls to act in the coming days?

Yesterday's official data showed that Chinese manufacturing PMI dropped to 49.7 in the previous month, which was the lowest reading since August 2012. In this way, China's manufacturing purchasing managers' index slipped under the 50-point level, which indicated industry contraction and raised concerns that Chinese demand for oil will decline (China imports more than 5.65 million barrels of crude oil per day, which makes the country the world's second-largest importer of oil beyond the U.S.). Thanks to these circumstances, light crude declined sharply and approached important support levels. What's next for crude oil? (charts courtesy of http://stockcharts.com).

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

Looking at the weekly chart we see that the proximity to the 50% Fibonacci retracement encouraged oil bears to act, which resulted in a sharp decline. With this downward move, light crude invalidated earlier breakout above the 38.2% Fibonacci retracement, which s a negative signal that suggests further deterioration. Nevertheless, in our opinion such price action will be more likely and reliable if we see a drop under the blue support zone (based on the Jan lows) and the previously-broken black support line (based on Jan and Mar weekly closing prices).

Having said that, let's take a closer look at the daily chart and find out what impact did this sharp decline have on the very short-term chart.

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

From this perspective we see that the 50-day moving average stopped further improvement, triggering a sharp decline. As a result, light crude erased 40% of earlier rally and reached the support zone created by the Jan lows (marked with red), which could trigger a rebound from here in the coming day(s). Nevertheless, the current position of the indicators (the CCI and Stochastic Oscillator are overbought) suggests that further deterioration is just around the corner.

If the commodity extends decline, the initial downside target would be around $43, where the previously-broken red declining support line (the upper border of the red declining trend channel) is. At this point, it is worth noting that if crude oil drops under this key support line, the current decline will accelerate and the probability of another profitable transaction will increase. Until this time, in our opinion, the overall situation is too unclear to open any positions.

Summing up, crude oil declined sharply and approached support levels, which could trigger a rebound and another test of the 50-day moving average in the coming day(s).

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

 


 

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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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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