Crude Oil Price Time for Reversal?

Commodities / Crude Oil Aug 06, 2015 - 01:06 PM GMT

Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective.

On Tuesday, crude oil moved higher after the market's open supported by hopes for another decline in U.S. stockpiles. Thanks to these circumstances, light crude bounced off the multi-month low and gained 1.48%. Did this increase change anything in the short-term picture of the commodity?

Yesterday, the Shanghai Composite Index increased by more than 3%, which in combination with expectations that the API and EIA reports would show another decline in domestic crude oil inventories supported the price of light crude. As a result, crude oil reversed and bounced off Monday's low. What impact did this move have on the short-term picture of crude oil? (charts courtesy of http://stockcharts.com).

The first thing that catches the eye on the above chart is an invalidation of the breakdown below the green support line based on the previous lows. This positive event encouraged oil bulls to act, which resulted in a rally to an intraday high of $46.23. But did this move change anything in the short-term picture? Not really. The reason? Firstly, yesterday's upswing is much smaller than previous upward moves (marked with blue). Secondly, the size of volume that accompanied Tuesday's increase is much smaller compared to what we saw in recent days. Thirdly, and most importantly, the commodity remains under the previously-broken Apr low and the 78.6% Fibonacci retracement. Therefore, what we wrote in our previous commentary is up-to-date:

(...) we believe that as long as crude oil remains below $46.72-$47.05 all upswings would be nothing more than a verification of the breakdown under the previously-broken Apr low and the 78.6% Fibonacci retracement. Therefore, in our opinion, lower values of the commodity are just around the corner (especially when we factor in the rising size of volume in the previous days, which reflects the growing strength of oil bears).

Summing up, although crude oil moved little higher, the commodity is trading under the previously-broken Apr low, which means that the downtrend remains in place and suggests that lower values of the commodity are still ahead us.

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.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski
Founder, Editor-in-chief

Sunshine Profits: Gold & Silver, Forex, Bitcoin, Crude Oil & Stocks
Stay updated: sign up for our free mailing list today

* * * * *

Disclaimer

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’ 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.

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.