Oil Trading Alert: Crude Oil - Technical Juncture

By: Nadia Simmons & Przemyslaw Radomski | Mon, Mar 14, 2016
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Oil Trading Alert originally published on March 14, 2016, 8:42AM


 

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

On Friday, crude oil gained 1.24% as rig count declined to the lowest level ever. Thanks to this news, light crude hit a fresh March high, but will we see further rally in the coming week?

In our last Oil Trading Alert, we wrote the following:

(...) earlier today, the IEA, said that non-OPEC output would fall by 750,000 barrels per day (bpd) in 2016 compared to its previous estimate of 600,000 bpd. Additionally, U.S. production alone would decline by 530,000 bpd in 2016. Thanks to this news, crude oil futures extended gains in a pre-market trading, hitting a fresh high of $38.95, which suggests that the commodity could also move higher after the market's open and even approach the barrier of $40 later in the day (especially if today's Baker Hughes report would be bullish).

As it turned out, on Friday, crude oil extended gains and hit a fresh high of $39.02 after the Baker Hughes report showed that the total number of U.S. oil rigs dropped by 9 to 480 for the week ending on March 4, which was the lowest level in history (the previous lowest record came on April 23, 1999 when the rig count slipped to 488). On top of that, the number of active U.S. oil drilling rigs dropped by 6 to 386, which was the 12th consecutive week of weekly declines. Thanks to these numbers, light crude re-tested the major resistance levels, but will we see further rally in the coming week? Let's take a look at the charts and find out what can we infer from them (charts courtesy of http://stockcharts.com).

Light Crude Oil Weekly Chart
Larger Image

On the weekly chart, we see that although crude oil moved higher once again, the red declining resistance line (based on the Sep 29, Jun 22 and Oct 12 weekly closing prices) continues to keep gains in check.

Are there any other factors that could encourage oil bears to act? Let's examine the daily chart and find out.

Light Crude Oil Daily Chart
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From this perspective, we see that crude oil moved higher once again, hitting a fresh March high. Despite this increase, the red resistance zone is still in play (there wasn't daily closure above it), which in combination with the medium-term picture and the proximity to the barrier of $40 could encourage oil bears to act and trigger a downward move from here in the coming days.

Additionally, we should keep in mind that the daily CCI and Stochastic Oscillator are overbought and there are also negative divergences between them and light crude. On top of that, when we take a closer look at the size of volume that accompanied Friday's increase we clearly see that it was quite small (compared to the volume that we saw last Monday or Wednesday), which suggests that the bulls may weaken.

Finishing today's alert, we'll take a look at the relationship between oil and gold once again.

Light Crude Oil/Gold Weekly Chart
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As you see on the weekly chart, although the oil-to-gold ratio moved higher once again, the green resistance line (based on the Mar and Aug lows) continues to keep gains in check, suggesting that reversal from here is very likely. Why? Because we saw a similar price action in late Jan. Back then the above-mentioned resistance triggered a sharp decline in the following weeks, which increases the probability that history will repeat itself once again and we'll see lower values of the ratio (and crude oil) in the coming week(s).

What about gold? Taking into account the fact that the recent increases in the ratio corresponded to the upward move in gold, it seems that reversal of the ratio will translate into lower values of the yellow metal. Nevertheless, if you would like to know more about gold as an investment, we encourage you to sign up for Gold & Silver Trading Alerts or the All-Inclusive Package that includes it.

Finishing today's alert, we would like to draw your attention to the current situation in crude oil futures, which moved sharply lower in a pre-market trading after Iranian Oil Minister's comments. Bijan Zanganeh said that his country won't join a production freeze deal until Iran increases its output to 4 million barrels a day (bpd). Taking this fact into account, it seems that crude oil will also erase some of recent gains later in the day. If we see such price action, the first downside target would be around $37.21, where the Mar 10 low is.

Summing up, the red resistance zone (marked on the daily chart) and the red resistance line (seen on the weekly chart) continues to keep gains in check (in terms of daily and weekly closing prices). Additionally, the current position of the indicators and the proximity to the psychologically important barrier of $40 suggests that reversal and lower values of the commodity are just around the corner.

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

Trading position (short-term; our opinion): No positions 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
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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