• 287 days Will The ECB Continue To Hike Rates?
  • 287 days Forbes: Aramco Remains Largest Company In The Middle East
  • 289 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 689 days Could Crypto Overtake Traditional Investment?
  • 694 days Americans Still Quitting Jobs At Record Pace
  • 695 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 699 days Is The Dollar Too Strong?
  • 699 days Big Tech Disappoints Investors on Earnings Calls
  • 700 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 701 days China Is Quietly Trying To Distance Itself From Russia
  • 702 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 706 days Crypto Investors Won Big In 2021
  • 706 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 707 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 709 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 709 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 713 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 714 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 714 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 716 days Are NFTs About To Take Over Gaming?
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

Strong U.S. Dollar Weighs On Blue Chip Earnings

Strong U.S. Dollar Weighs On Blue Chip Earnings

Earnings season is well underway,…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

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…

Contact Author

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…

Contact Author

  1. Home
  2. Markets
  3. Other

Oil Trading Alert: Crude Oil under $40!

Oil Trading Alert originally published on Dec 7, 2015, 1:15 PM


 

Trading position (short-term; our opinion): Short positions with a stop-loss order at $54.12 and initial (!) target price at $35.72 are justified from the risk/reward perspective.

On Friday, crude oil reversed and declined sharply after the Organization of the Petroleum Exporting Countries' decision to keep production high weighed on investors' sentiment. Thanks to these circumstances, light crude lost 2.74% and slipped under the barrier of $40 once again. What's next?

The most important event of the previous week was the OPEC's meeting in Vienna. As a reminder, the Organization of the Petroleum Exporting Countries decided to maintain current production levels at around 31.5 million barrels per day, which pushed the price of the commodity to an intraday low of $39.60. Although Friday's Baker Hughes report showed that the number of rigs drilling for oil in the U.S. dropped by 10 last week to 545, light crude closed the day slightly above the barrier of $40. What's next? Let's examine charts and find out (charts courtesy of http://stockcharts.com).

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

In our previous commentary, we wrote the following:

(...) the commodity remains under its key resistance zone and sell signals generated by the weekly and daily Stochastic Oscillator remain in place, which suggests another attempt to move lower.

Looking at the daily chart, we see that the red declining resistance line (the upper border of the declining trend channel) encouraged oil bears to push the commodity lower (as we had expected). With Friday's downswing, light crude broke below the barrier of $40 once again, which suggests that lower values of the commodity are just around the corner.

How low could crude oil go in the coming days? We believe that the best answer to this question will be the quote from our Oil Trading Alert posted on Thursday:

(...) we would like to draw your attention to a potential head and shoulders formation. As you see on the chart, last week's upward move took light crude to slightly above the black dashed resistance line. Despite this improvement, oil bulls didn't manage to push crude oil higher, which showed their weakness and resulted in an invalidation of the small breakout. As a result, light crude extended losses and slipped under $40 yesterday, which suggests that the bearish formation is underway. Therefore, in our opinion, if the commodity declines from here, we may see not only a test of the Aug low of $37.75, but also a fresh 2015 low (around $36.50, where the size of the downward move will correspond to the height of the formation).

Nevertheless, to have a more complete picture of the commodity, let's find out what impact did Friday's decline have on the medium-term picture.

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

On Friday, we wrote:

(...) crude oil remains in a consolidation (marked wih grey) under the key resistance zone. A potential breakdown under the lower line of the formation could bring not only a test of the Aug low, but also a fresh 2015 low around $35.35 (in this area the size of the downward move would correspond to the height of the formation).

As you see on the above chart, crude oil not only broke under the lower border of the consolidation, but also closed the previous week below it. This is a bearish signal, which suggests that our downside target from the previous alert would be in play in the coming week(s).

Summing up, crude oil declined sharply and closed the previous week under the lower border of the consolidation (marked on the weekly chart), which suggests that further deterioration is just around the corner. Therefore, short positions (which are already profitable as we opened them when crude oil was trading around $46.69) continue to be justified from the risk/reward point of view.

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

Trading position (short-term; our opinion): Short positions with a stop-loss order at $54.12 and initial (!) target price at $35.72 are justified from the risk/reward perspective.

 

Back to homepage

Leave a comment

Leave a comment