"No warning can save people determined to grow suddently rich" - Lord Overstone

  • 20 hours Economists Polarized On Trump’s Tariff Plan
  • 2 days Why Are Investors Overlooking Gold Stocks?
  • 2 days The App That Democratized Trading Is Now Worth $5B
  • 2 days Super-Cycles: Why Gold Is Set For A Breakout
  • 2 days U.S. Sanctions Russia For Election Meddling And Cyberattacks
  • 2 days Snap Shares Tank Over ‘Slap Rihanna’ Campaign
  • 2 days How Low Can Bitcoin Go?
  • 2 days Amazon’s Japan HQ Raided In Anti-Monopoly Push
  • 2 days Is Barrick Gold Close To Finding A Bottom?
  • 3 days Morgan Stanley’s Top 10 Short-Term Stock Picks
  • 3 days China: The Land Of The Ultra-Rich
  • 3 days Alibaba Soars On Reports Of China Listing
  • 3 days What Killed Toys ‘R’ Us?
  • 3 days SEC And IRS Take An Aggressive Stance On Cryptocurrencies
  • 3 days Bears And Bulls Face Off In Gold Markets
  • 3 days Bitcoin Is Winning Over The Housing Market
  • 3 days Markets Slide Sideways As Trade War Fears Linger
  • 4 days Why Aren’t Millennials Investing?
  • 4 days Bitcoin And Banking: The Next Mobile Payment Revolution
  • 4 days SEC Cracks Down On Silicon Valley’s “Disruptive Tech”
The App That Democratized Trading Is Now Worth $5B

The App That Democratized Trading Is Now Worth $5B

Investors and customers have rallied…

Snap Shares Tank Over ‘Slap Rihanna’ Campaign

Snap Shares Tank Over ‘Slap Rihanna’ Campaign

Snapchat’s share prices tumbled after…

Nadia Simmons

Nadia Simmons

Nadia is a private investor and trader, dealing in stocks, currencies, and commodities. Using her background in technical analysis, she spends countless hours identifying market…

More Info

Przemyslaw Radomski

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…

More Info

Oil Trading Alert: Crude Oil - Breakdown or Trap?

Oil Trading Alert originally published on June 18, 2014, 11:12 AM


On Tuesday, the price of crude oil wobbled between gains and losses throughout the session as mixed data and profit taking weighed on investors' sentiment. As a result, light crude reversed after an increase to the resistance zone and declined below an important medium-term support line. Will this event be strong enough to trigger a sizable correction?

As you know from our previous Oil Trading Alerts, the major factor that has driven crude oil higher in recent days was the deteriorating situation in Iraq - the seventh-largest oil producer in the world last year and OPEC's second-most-important producer country. Thanks to the Iraqi crisis, light crude increased to a nine-month high, but it seems that the impact of the Iraq violence on the price could be short-lived as investors figured out that active oilfields remain far south from the insurgency and disruption fears are overdone - especially when we take into account the fact that U.S. oil production is booming and most of that oil cannot be exported under current law.

Additionally, mixed data encouraged oil investors to jump to the sidelines. Yesterday, the Commerce Department reported that housing starts dropped by 6.5% in May, while the number of building permits issued fell by 6.4% in the previous month. Although these numbers disappointed, upbeat inflation data supported crude oil. Please note that the Labor Department reported that the U.S. CPI rose 2.1% on year in May and 0.4% from April.

How did these circumstances influence the technical picture? Let's check (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 situation has deteriorated slightly as crude oil moved lower and reached the rising black support line. If it holds, we will likely see another attempt to break above the long-term declining line, which triggered a pullback earlier this week. However, taking into account the position of the indicators (the CCI and Stochastic Oscillator are overbought), it seems to us that further deterioration is just around the corner - especially if crude oil breaks below its major medium-term support line (marked with black).

Will we see such price action in the coming days? Let's take a closer look at the daily chart.

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

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

(...) the initial downside target for oil bears will be the previously-broken medium-term black rising line (currently around $106.60), which stopped further deterioration on Friday. (...) if this line holds, we may see another attempt to break above the resistance zone. However, if it is broken, the current correction will accelerate and the commodity will find support around $104.55, where the upper line of the medium-term triangle (marked with blue) is.

From this perspective, we see that although oil bulls tried to realized the above-mentioned scenario, they failed and the commodity declined under the medium-term black rising line, closing the day slightly below it. In our opinion, this is a bearish signal, which suggests further deterioration. We are convinced that the current correction will accelerate, if light crude drops under the black dashed support line (currently around $105.95) and the CCI and Stochastic Oscillator generate sell signals. In this case, the above-mentioned downside target around $104.55 will be in play. Meanwhile, as long as crude oil remains around its black support line, another try to climb above the resistance zone can't be ruled out.

Summing up, although crude oil moved higher, the strong resistance zone created by the long-term declining line and two important Fibonacci retracement levels triggered a pullback, which took the commodity below the medium-term black rising line. Taking this fact into account, we remain bearish and think that if light crude declines from here, we'll see a drop to at least the medium-term blue support line (around $104.55).

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

Trading position (short-term; our opinion): Short. Stop-loss order at $109.20.

Thank you.


Back to homepage

Leave a comment

Leave a comment

Sign Up For The Safehaven Newsletter