Oil Trading Alert: Time for Drop below $50?

By: Nadia Simmons & Przemyslaw Radomski | Fri, Jan 20, 2017
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Oil Trading Alert originally published on Jan 19, 2017, 7:11 AM


 

Trading position (short-term; our opinion): Short positions (with a stop-loss order at $56.45 and an initial downside target at $45.81) are justified from the risk/reward perspective.

On Wednesday, crude oil lost 2.57% after the head of the IEA warned of a significant increase in U.S. shale output as OPEC and non-OPEC producers cut output. This news negatively affected the investors' sentiment and pushed the black gold under important support levels. What does it mean for light crude?

Let's examine the charts below to find out (charts courtesy of http://stockcharts.com).

Crude Oil Weekly Chart
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Yesterday, we wrote the following:

(...) although crude oil moved higher yesterday, the red gap continues to keep gains in check. Additionally, the sell signals generated by the indicators are still in play, supporting oil bears and another attempt to move lower.

From today's point of view we see that the situation developed in line with the above scenario and crude came back below the previously-broken long-term red support/resistance line, invalidating the earlier breakout. This is a negative event, which together with the sell signals suggests further deterioration in the following days.

Having said the above let's examine the daily chart and look for more bearish factors.

Crude Oil Daily Chart
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Looking at the very short-term chart, we see that crude oil extended losses and dropped under the October high. This move materialized on higher volume, which confirms the oil bears' strength. Additionally, the CCI reversed and the Stochastic Oscillator re-generated a sell signal, which suggests that what we wrote yesterday is up-to-date also today:

(...) light crude not only hit a double top, but also declined below last week's high, which doesn't bode well for the commodity.

On top of that, when we take a closer look at the daily chart, we can notice a potential head and shoulders formation. If this is the case, yesterday's move to the upside created the right shoulder of the pattern, suggesting lower prices of the black gold in the coming days.

How low could crude oil go in the near future? In our opinion, the initial downside target will be the neck line of the head and shoulders formation (around $50.89 at the moment of writing these words). If it is broken, we'll see an acceleration of declines and a drop even to around $46.36, where the size of the downward move will correspond to the height of the mentioned formation.

Before we finish today's alert we would also like to draw your attention to the relationship between the black gold and the precious metals.

Crude Oil/Gold Weekly Chart
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On the medium-term chart, we see that the oil-to-gold ratio declined under the lower border of the blue consolidation once again, which increases the probability of further deterioration in the coming week(s). If his is the case and we see such action, crude oil will also move lower, because the strong positive correlation between light crude and the ratio remains in place.

We can also notice one more bearish development on the medium-term chart of the oil-to-silver ratio.

Crude Oil/Silver Weekly Chart
Larger Image

From this perspective we see that the invalidation of the breakout above the 38.2% Fibonacci retracement triggered further deterioration and a drop below last week's low, which is a negative event. Additionally, there are also the sell signals generated by the indicators, which support oil bears and lower values of the ratio and crude oil.

Summing up, short positions continue to be justified as the double top formation, the potential head and shoulders pattern and the current situation in the oil-to-gold and oil-to-silver ratios suggest further deterioration in the coming days.

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

Trading position (short-term; our opinion): Short positions (with a stop-loss order at $56.45 and an initial downside target at $45.81) are justified from the risk/reward perspective.

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
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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