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Trading Lessons

Crude Oil Price at Levels Not Seen Since March

Commodities / Crude Oil Aug 04, 2015 - 09:49 AM GMT

By: Nadia_Simmons

Commodities

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

On Friday, crude oil declined sharply after news that production among OPEC members in July pushed supply at the oil cartel to its highest level in seven years. In this environment, light crude lost 3.45% and re-tested the Jul low. Where will oil bears take the commodity in the coming days?


On Friday, news that OPEC supply increased to 32.01 million barrels per day (from an upwardly revised total of 31.87 million bpd in June) in combination with bearish Baker Hughes report (which showed that U.S. oil rigs increased to its highest level since May) weighed on investors' sentiment and pushed the commodity sharply lower. As a result, light crude erased all last week's gains and dropped to the Jul 28 low. Where will the commodity head next? (charts courtesy of http://stockcharts.com).

In our Oil Trading Alert posted on Tuesday, we wrote the following:

(...) If the commodity extends declines (...), we'll see (at least) a test of the 78.6% Fibonacci retracement levels (around $46.72).

Looking at the daily chart we see that although crude oil moved higher in the previous week, the commodity reversed and declined sharply on Friday, reaching our initial downside target. What's next? When we take a closer look at the daily chart, we clearly see that the last week's upward move didn't change anything in the short-term picture because it was similar to the previous one and much smaller than upward moves in May and June (all marked with blue on the above chart). This means that the downtrend remains in place and lower prices of light crude are just around the corner.

At this point, it is worth noting that Friday's downswing materialized on sizable volume and took crude oil below the Apr low and the green support zone (it was also the lowest daily close since Mar 20), which suggests that our next downside target from Tuesday's alert will be in play in the coming days:

(...) What could happen if this support is broken? In our opinion, the next target for oil bears would be the lower border of the declining trend channel (...) or even the green support zone created by the Mar 19 and Mar 20 lows ($44.77-$44.82).

Summing up, July was the worst month for the commodity since the beginning of the year. In this period of time, crude oil lost 20.85% (trade (we entered the short position on May 8 when crude oil was trading at about $59) and broke below the Apr low, closing Friday's session at its lowest level since Mar 20. This confirms that the downtrend remains in place and suggests that lower values of the commodity are 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. We will keep you - our subscribers - informed should anything change.

Thank you.

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

Sunshine Profits: Gold & Silver, Forex, Bitcoin, Crude Oil & Stocks
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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.


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