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Trading Lessons

Crude Oil Price One-day Rebound or Something More?

Commodities / Crude Oil Aug 27, 2015 - 12:26 PM GMT

By: Nadia_Simmons

Commodities

Trading position (short-term; our opinion): Short positions with a stop-loss order at $45.32 and profit-take order at $35.72 are justified from the risk/reward perspective.

On Tuesday, crude oil gained 4.15% after China's central bank cut interest rates. Thanks to this news, light crude reversed and invalidated Monday’s breakdown under the support line. Despite this move, the commodity still remains under the barrier of $40. Will it stop further improvement in the coming days?


Yesterday, crude oil moved higher after the market’s open supported by news that the People’s Bank of China cut interest rates by 25 basis points to 4.6% and the reserve requirement ratio for large lenders by 0.5% to 18.0%. As a result, light crude rebounded in the following hours, climbing to an intraday high of $39.89. Will we see an invalidation of the breakdown under $40 in the coming days? (charts courtesy of http://stockcharts.com).

Quoting our last Oil Trading Alert:

(…) we should keep in mind that, yesterday’s downswing approached crude oil to the upper green support zone marked on the weekly chart below. Taking this fact into account, we think that corrective upswing from here should not surprise.

Looking at the weekly chart, we see that the situation developed in line with the above scenario and crude oil moved little higher (compared to the preceding declines).

What impact did this move have on the very short-term picture? Let’s check.

From this perspective we see that yesterday’s upswing took the commodity above the previously-broken red and blue declining lines. In this way, light crude invalidated earlier breakdown below them, which is a positive signal. But is it so favorable for oil bulls as it seems at the first glance?

Looking at the daily chart we see that yesterday’s upswing materialized on smaller volume than Monday’s decline. Secondly, despite Tuesday’s increase, the commodity is still trading under the key technical level of $40 and also below the Mar low of $42.41. Thirdly (and the most importantly), the recent rebound is smaller than previous upswings (marked with blue), which suggests that oil bulls are not stronger than they were in previous weeks.

Taking all the above into account, we believe that as long as the commodity remains under the key technical level of $40 and there is no bigger upward move (bigger than previous upswings) lower values of crude oil are more likely than not.

Summing up, although crude oil invalidated the breakdown under the red declining support line, the commodity remains under the key technical level of $40 and the Mar low. Additionally, yesterday’s upswing is smaller than previous upward moves, which doesn’t confirm oil bulls’ strength at the moment, suggesting another attempt to move lower in the coming days.

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 $45.32 and profit-take order at $35.72 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
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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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