Oil Trading Alert originally published on Jul 22, 2015, 7:41 AM
Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective.
Although crude oil declined after the market's open, hitting a fresh multi-month low, the commodity rebounded in the following hours and closed the day above the Jul 7 low. Did this upswing change anything in the short-term picture of crude oil?
Yesterday, the USD Index moved sharply lower as investors locked in profits from the greenback's recent rally to a multi-month high of 98.31. As a result, the index dropped to an intraday low of 97.23, making crude oil more attractive for investors holding other currencies. Additionally, expectations that the API and EIA reports would show another decline in domestic crude oil inventories (after Friday's Baker Hughes report showed another drop in U.S. oil rigs) supported light crude as well. Thanks to these circumstances, crude oil climbed to an intraday high of $51.41, but did this upswing change anything in the short-term picture of crude oil? (charts courtesy of http://stockcharts.com).
Looking at the daily chart, we see that crude oil moved lower after the market's open and hit a fresh multi-month low of $50.08. Despite this drop, the green support zone encouraged oil bulls to act, which resulted in a rebound in the following hours.
Did this upswing change anything in the short-term picture? Not really, because it was very small compared to a one-day rally that we saw on Jul 14 and it was also small relative to the size of the move lower in the USD Index. This suggests that yestrday's upswing was just a pause within a downtrend - not a beginning of a post-bottom rally.
Taking the above into account, our previous commentary is up-to-date also today:
(...) in our opinion, another acceleration of declines will be more likely if crude oil closes the day under the psychologically important barrier of $50 and the 61.8% Fibonacci retracement.
(...) If crude oil declines under the above-mentioned support zone, the next downside target for oil bears would be around $47.05-$47.55, where the Apr 10 low (in terms of an intraday and opening prices) is. If it is broken, crude oil will likely test the lower border of the support zone created by the 76.4% and 78.6% Fibonacci retracement levels (around $46.72-$47.17).
Finishing today's alert, we would like to draw your attention to yesterday's API report, which showed that crude oil inventories increased by 2.3 million barrels in the previous week. If today's EIA report confirms a built in domestic stockpiles, it would be a negative signal, which will give oil bears an additional argument to push the price lower.
Summing up, short positions in crude oil are justified from the risk/reward perspective as the downtrend remains in place, suggesting lower values of the commodity in the coming days (especially when we factor in sell signals generated by the weekly indicators).
Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: bearish
LT outlook: bearish
Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective.
