Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Stock Market Investors’ Limitless Risk Appetite - 27th Jan 21
3 Dividend Paying Stocks to Ride the New Housing Boom - 27th Jan 21
Biden Seeks Huge Spending, Globally Coordinated Tax Hikes - 27th Jan 21
Will Inflation Make Gold Shine in 2021? - 27th Jan 21
Amazon AI Stocks Investing Analysis 2021 - 27th Jan 21
Why You Shouldn’t Get Excited About Gold Price Mini-Rally - 26th Jan 21
The Truth About Personal Savings Everybody Should Know and Think About - 26th Jan 21
4 Economic Challenges for 2021 - 26th Jan 21
Scan Computers 2021 "Awaiting Picking" - 5950x RTX 3080 Custom PC Build Stock Status - 26th Jan 21
The End of the World History Stock Market Chart : Big Pattern = Big Move - 26th Jan 21
Stock Market Recent Sector Triggers Suggest Stocks May Enter Rally Phase - 26th Jan 21
3 Top-Performing Tech Stocks for 2021 - 26th Jan 21
5 Tips to Manage Your Debt - 26th Jan 21
Stock Market Intermediate Trend Intact - 25th Jan 21
Precious Metals Could Decline Before their Next Attempt to Rally - 25th Jan 21
Great Ways of Choosing Good CMMS Software for a Business - 25th Jan 21
The Dark Forces behind American Insurrectionists - 25th Jan 21
Economic Stimulus Doesn’t Always Stimulate – Pushing On A String - 25th Jan 21
Can Karcher K7 Pressure Washer Clean a Weed Infested Driveway? Extreme Power Test - 25th Jan 21
Lockdown Sea Shanty Craze - "Drunken Sailor" on the Pirate Falls Crazy Boat Ride - 25th Jan 21
Intel Empire Fights Back with Rocket and Alder Lake! - 24th Jan 21
4 Reasons for Coronavirus 2021 Hope - 24th Jan 21
Apple M1 Chip Another Nail in Intel's Coffin - Top AI Tech Stocks 2021 - 24th Jan 21
Stock Market: Why You Should Prepare for a Jump in Volatility - 24th Jan 21
What’s next for Bitcoin Price – $56k or $16k? - 24th Jan 21
How Does Credit Repair Work? - 24th Jan 21
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Crude Oil Price Double Top or Further Rally?

Commodities / Crude Oil Oct 06, 2016 - 02:56 PM GMT

By: Nadia_Simmons

Commodities

Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective. In other words, we think that taking profits off the table and closing the previous long positions is a good idea.

On Tuesday, crude oil gave some of earlier gains after news that Iran and Libya have continued to increase production. In these circumstances, light crude slipped to the previously-broken resistance zone, but then closed the day above it. Is this a verification of the breakout?


Let’s jump into the charts and try to find out what can we expect in the coming days (charts courtesy of http://stockcharts.com).

On Monday, we wrote the following:

(…) crude oil broke above the upper border of the blue consolidation, which is a positive event that suggests further improvement in the coming week. Additionally, the Stochastic Oscillator generated a buy signal and the size of the volume that accompanied last week’s upward move was huge (the biggest in more than two years), which confirms oil bulls’ strength and supports higher prices of the commodity (in our opinion, light crude will test the red resistance zone marked on the weekly chart) in near future.

Yesterday, we added:

(…) oil bulls pushed the commodity higher as we had expected. Thanks t yesterday’s increase light crude broke above the upper border of the red resistance zone, which means that (…) the next upside target would be the barrier of $50.

Looking at the above charts from today’s point of view, we see that crude oil extended gains (in line with our assumptions) and hit an intraday high of $49.26 yesterday. Despite this improvement, the proximity to the Aug high and the barrier of $50 triggered a small pullback (compared to earlier increases), which took the commodity to the previously-broken upper border of the red resistance zone.

What’s next? Taking into account the fact that light crude rebounded from session’s low and closed the day above the first red zone, we think that yesterday’s move was just a verification of earlier breakout above this area. If this is the case, we should see further improvement and a climb to our next upside target in the coming day.

Nevertheless, at this point we would like to draw your attention to several disturbing factors. Firstly, when we take a closer look at the daily chart, we notice that the size of volume that accompanied recent increases was decreasing in each passing day (since Sep 28). Additionally, yesterday’s small drop materialized on bigger volume than Friday’s or Monday’s upswing. This suggests that oil bulls may begin to lose their strength, which could translate into correction in the following days.

Secondly, the CCI and Stochastic Oscillator are overbought and remain at the highest levels since Sep high, which can encourage oil bears to act – similarly to what we saw several weeks ago.

Thirdly, we should keep in mind that crude oil approached a very solid resistance zone created by the Jun highs, the barrier of $50, the Oct 2015 peaks and the 2016 high (around $49-$51.67). As you see this area was strong enough to stop the rally in Aug, which in combination with all the above-mentioned factors can cause that history will repeat itself and we’ll see a correction (even if light crude moves little higher from current levels and test the strength of the next red zone first) in very near future.

On top of that when we examine the current situation in the oil-to-gold, oil-to-stocks and oil-to-oil stocks ratios (more about these and other interesting ratios you can know from our monthly Oil Investment Updates), we can add more negative factors.

On the above chart, we see that the oil-to-gold ratio extended gains and almost touched the upper blue resistance line (a neck line of a potential reverse head and shoulder formation), which suggests that the space for gains may be limited. However, even if the ratio climbs little higher from the current levels, we think that as long as there won’t be a breakout above the May high and the red resistance zone another sizable move to the upside (in the ratio and also in crude oil) is not likely to be seen and reversal should not surprise us.

Having said the above, let’s zoom in our picture and find out how recent increases affected the daily chart.

From this perspective, we see that although the ratio gained over 3% and created a gap yesterday, the red resistance zone (created by the Jun gap) continues to keep gains in check.  On top of that, the size of Tuesday’s volume was tiny, which in combination with the current position of the indicators increases the probability of reversal in the coming days.

What can we infer from the relationship between crude oil and the general stock market? Let’s examine the charts and find out.

Looking at the weekly chart, we see that the ratio increased slightly above the upper border of the blue consolidation and reached the red dashed line based on the weekly closing prices. As you see this resistance was strong enough to stop increases in May and Jun, which suggests that we can see similar price action this week.

Additionally, when we focus on the very short-term chart below, we’ll see that the ratio invalidated yesterday’s breakout above the Aug high, which is an additional negative factor.

On top of that, the size of volume doesn’t confirm the strength of the recent increases, while the CCI and Stochastic Oscillator are overbought (similarly to what we saw several weeks ago), which suggests that reversal is just around the corner.

Finishing today’s alert, let’s take a look at the oil-to-oil stocks ratio.

On the above chart, we see that the ratio not only reached the upper border of the blue consolidation, but also the key red resistance zone, which continues to keep gains in check since Dec 2014. Taking this fact into account, we think that even if the ratio (and crude oil as positive correlation remains in place) extends gains from here, as long as there won’t be a breakout and a weekly closure above the upper border of the zone (which is currently reinforced by the neck line of a potential reverse head and shoulders) further rally is not likely to be seen and another reversal is very likely.

Summing up, crude oil moved little lower and slipped to the previously-broken upper border of the first resistance zone on Tuesday, which looks like a verification of earlier breakdown. If this is the case, we’ll see further improvement and a test of our next upside target- the barrier of $50. Nevertheless, the current picture of the oil market that emerges from our ratios suggests that the space for gains may be limited and reversal is just around the corner. Therefore, in our opinion, closing short positions (we opened them on Sep 22 when crude oil was trading around $45.60) and taking profits off the table is the best decision at the moment.

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

Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

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.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

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

6 Critical Money Making Rules