Oil Trading Alert originally published on Apr 18, 2014, 10:04 AM
On Thursday, crude oil gained 0.76% as the escalating conflict in Ukraine weighted on the price. Thanks to this news, light crude bounced off an important support/resistance line. Will it increase further with the tensions in the background? Does yesterday growth change the outlook for the commodity?
Yesterday, foreign ministers from Russia, Ukraine, the U.S. and the European Union started talks in Geneva on Thursday in a diplomatic effort to ease tensions between Kiev and Moscow. However, Russian President Vladimir Putin said that he would not rule out sending Russian troops into Ukraine. Similarly to what we saw in the recent days, concerns over the situation in eastern Ukraine remained supportive for crude oil as the West may impose new sanctions against Russia and bring about supply disruptions. In reaction to these circumstances light crude moved higher once again and approached the April high.
Having discussed the above, let's move on to the technical changes in crude oil (charts courtesy of http://stockcharts.com).
As you see on the weekly chart, the situation has improved as crude oil extended gains above the medium-term resistance line (marked with black) and the move is finally visible from this perspective. Taking this fact into account, what we wote in our Oil Trading Alert posted on Wednesday, is still up-to-date.
(...) crude oil broke above the medium-term resistance line based on the September and March highs (which is also the upper line of a triangle) (...). According to theory, such price action should trigger further improvement and an increase to around $108, where the long-term resistance line (marked with red) is (...).
Having disscussed the above, let's zoom in on our picture and move on to the daily chart.
Quoting our Oil Trading Alert posted on March 16:
(...) crude oil closed the day above the medium-term resistance line, which is a strong bullish signal. Despite this positive event, we should keep in mind that the breakout is not confirmed at the moment. Additionally, as mentioined earlier, the size of the upswing is too small to say that this breakout is reliable. If we see two consecutive daily closes above this line (or a significant upward move on high volume), the breakout will be confirmed and we likely see further improvement and an increase to (at least) the 2014 high (...).
Yestarday, we wrote the following:
(...) we wrote that the breakout would be confirmed after two consecutive daily closes above the medium-term support/resistance line. However, taking into account the recent price action, it seems that three consecutive closes might be more appropriate.
Looking at the above chart, we see that oil bulls didn't give up and pushed the oreder button after the market open. In reaction to this, crude oil bounced off the previously-broken medium-term support/resistance line and succesfully broke above te upper line of the rising trend channel (marked with dashed line). According to theory, such price action will likely trigger an increase to around $108, where the price target is (and corresponds to the height of the trend channel). As mentioned earlier, in this area is also the long-term resistance line (marked on the weekly chart). As you see on the daily chart, although light crude gave up some gains after approaching the April high, the commodity closed the day above the medium-term black line for the third time in a row, which means that the breakout is confirmed. This is a strong bullish signl, which suggests that we will likely see further improvement in the coming days. Nevertheless, taking into account the resistance zone created by the April and 2014 highs, we may see a pause before we see another sizable upswing.
Before we summarize today's Oil Trading Alert, we would like to draw your attention to the long-term XOI chart.
Taking into account the fact that crude oil and the oil stock index have moved in the same ditection recently, it seems that light crude will reach the long-term resistance line at the same time as the XOI the 2008 high. We might view this (both levels being reached simultaneously) as a confrimation that another local top is in or that at least a pause is likely.
Summing up, the most significant event of yesterday session is a confirmation of the breakout above the medium-term resistance line. As mentioned earlier, this is a strong bullish signal, which suggests that we will likely see further improvement in the coming days (despite the fact that we may see a pause around the nearest resistance zone).
Very short-term outlook: bullish
Short-term outlook: bullish
MT outlook: mixed with bullish bias
LT outlook: mixed
Trading position (short-term; our opinion): Crude oil confirmed the breakout above the medium-term resistance line and opening long positions at the following terms is a good idea. Stop-loss order for crude oil: $102.40, stop-loss order for WTI Crude Oil (CFD): $102.20. A price target for crude oil and the CFD: $108. We will keep you informed should anything change as far as our opinion is concerned, or should we see a confirmation/invalidation of the above. The above is not an investment / trading advice and please note that trading (especially using leveraged instruments such as futures or on the forex market) involves risk.