Oil Trading Alert: Crude Oil under $40!

By: Przemyslaw Radomski & Nadia Simmons | Mon, Dec 7, 2015
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Oil Trading Alert originally published on Dec 7, 2015, 1:15 PM


 

Trading position (short-term; our opinion): Short positions with a stop-loss order at $54.12 and initial (!) target price at $35.72 are justified from the risk/reward perspective.

On Friday, crude oil reversed and declined sharply after the Organization of the Petroleum Exporting Countries' decision to keep production high weighed on investors' sentiment. Thanks to these circumstances, light crude lost 2.74% and slipped under the barrier of $40 once again. What's next?

The most important event of the previous week was the OPEC's meeting in Vienna. As a reminder, the Organization of the Petroleum Exporting Countries decided to maintain current production levels at around 31.5 million barrels per day, which pushed the price of the commodity to an intraday low of $39.60. Although Friday's Baker Hughes report showed that the number of rigs drilling for oil in the U.S. dropped by 10 last week to 545, light crude closed the day slightly above the barrier of $40. What's next? Let's examine charts and find out (charts courtesy of http://stockcharts.com).

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

In our previous commentary, we wrote the following:

(...) the commodity remains under its key resistance zone and sell signals generated by the weekly and daily Stochastic Oscillator remain in place, which suggests another attempt to move lower.

Looking at the daily chart, we see that the red declining resistance line (the upper border of the declining trend channel) encouraged oil bears to push the commodity lower (as we had expected). With Friday's downswing, light crude broke below the barrier of $40 once again, which suggests that lower values of the commodity are just around the corner.

How low could crude oil go in the coming days? We believe that the best answer to this question will be the quote from our Oil Trading Alert posted on Thursday:

(...) we would like to draw your attention to a potential head and shoulders formation. As you see on the chart, last week's upward move took light crude to slightly above the black dashed resistance line. Despite this improvement, oil bulls didn't manage to push crude oil higher, which showed their weakness and resulted in an invalidation of the small breakout. As a result, light crude extended losses and slipped under $40 yesterday, which suggests that the bearish formation is underway. Therefore, in our opinion, if the commodity declines from here, we may see not only a test of the Aug low of $37.75, but also a fresh 2015 low (around $36.50, where the size of the downward move will correspond to the height of the formation).

Nevertheless, to have a more complete picture of the commodity, let's find out what impact did Friday's decline have on the medium-term picture.

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

On Friday, we wrote:

(...) crude oil remains in a consolidation (marked wih grey) under the key resistance zone. A potential breakdown under the lower line of the formation could bring not only a test of the Aug low, but also a fresh 2015 low around $35.35 (in this area the size of the downward move would correspond to the height of the formation).

As you see on the above chart, crude oil not only broke under the lower border of the consolidation, but also closed the previous week below it. This is a bearish signal, which suggests that our downside target from the previous alert would be in play in the coming week(s).

Summing up, crude oil declined sharply and closed the previous week under the lower border of the consolidation (marked on the weekly chart), which suggests that further deterioration is just around the corner. Therefore, short positions (which are already profitable as we opened them when crude oil was trading around $46.69) continue to be justified from the risk/reward point of view.

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

Trading position (short-term; our opinion): Short positions with a stop-loss order at $54.12 and initial (!) target price at $35.72 are justified from the risk/reward perspective.

 


 

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.

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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.

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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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