Best of the Week
Most Popular
1.What Happened to the Stock Market Crash Experts Were Predicting - Sol_Palha
2.London Housing Market Property Bubble Vulnerable To Crash - GoldCore
3.The Plan to Control ALL Your Money is Now at Advanced Stage
4.Why Gold Is Set For An Epic Rally This Spring - James Burgess
5.MR ROBOT NHS Cyber Attack Hack - Why Israel, NSA, CIA and GCHQ are Culpable - Nadeem_Walayat
6.Emmanuel Macron and Banking Elite Win French Presidential Election 2017 - Nadeem_Walayat
7.Trend Lines Met, Technical's are Set - US Dollar is Ready to Rally (Elliott Wave Analysis) - Enda_Glynn
8.The Student Debt Servitude Sham - Gordon_T_Long
9.Czar Trump Fires Comey, Terminates Deep State FBI, CIA Director Next? - Nadeem_Walayat
10.UK Local Elections 2017 - Labour Blood Bath, UKIP Death, Tory June 8th Landslide - Nadeem_Walayat
Last 7 days
The No.1 Commodity Play In The World Today - 24th May 17
Marks and Spencer Profits Collapse, Latest Retailer Hit by Brexit Inflation Tsunami 2017 - 24th May 17
Why Online Trading Platforms Are Useful for Everyone - 24th May 17
The Stock Market Will Tank Hard - 24th May 17
It’s Better to Buy Gold & Silver When It DOESN’T Feel Good - 24th May 17
Global Warming - Saving Us From Us - 24th May 17
Stock Market Forecast for Next 3 Months - Video - 23rd May 17
Shale Oil & Gas Production Costs Spiral Higher As Monstrous Decline Rates Eat Into Cash Flows - 23rd May 17
The Only Metal Trump Wants More Than Gold - 23rd May 17
America's Southern Heritage is a Threat to the Deep State - 23rd May 17
Manchester Bombing - ISIS Islamic Terrorist Attack Attempt to Influence BrExit Election - 23rd May 17
What an America First Trade Policy Could Mean for the US Dollar - 22nd May 17
Gold and Sillver Markets - Silver Price Sharp Selloff - 22nd May - 22nd May 17
Stock Market Volatile C-Wave - 22nd May 17
Stock Market Trend Forecast and Fear Trading - 22nd May 17
US Dollar Cycle : Deep Dive - 21st May 17
Bitcoin Breaks the $2,000 Mark as Cryptocurrencies Continue to Explode Higher - 21st May 17
Stocks, Commodities and Gold Multi-Market Status - 21st May 17
Stock Market Day Trading Strategies and Brief 20th May 2017 - 21st May 17
DOW Needs to Rally Big or Correction is Next - 20th May 17
EURUSD reaches DO or DIE moment! - 20th May 17
How to Get FREE Walkers Crisps Multi-packs! £5 to £28k Pay Packet Promo - 20th May 17
UK BrExit General Election 2017 - Will Opinion Pollsters Finally Get it Right? - 19th May 17
Gold Mining Junior Stocks GDXJ 2017 Fundamentals - 19th May 17
If China Can Fund Infrastructure With Its Own Credit, So Can We - 19th May 17
Evidence That Stocks are More Overvalued than Ever - 19th May 17
Obamacare May Become Zombiecare In 2018 - 19th May 17
The End of Reflation? Implications for Gold - 19th May 17
Gold and Silver Trading Alert: New Important Technical Development - 19th May 17
Subversion And Constructive Synthesis Of Capitalism And Socialism - 18th May 17
Silver: Train Leaving Station Soon! - 18th May 17
Credit and Volatility Signal That Financial Conditions Are Very Overheated - 18th May 17
Another Stock Market "Minsky Moment" or Will the Markets Calm Down? - 18th May 17
WannaCry Ransomware Virus Is a Globalist False Flag Attack On Bitcoin - 18th May 17
Euro, Stocks, Gold Momentum Extremes All Round! - 18th May 17
US Stock Market Slumps on Establishment / CIA Trump Impeachment Coup Plan - 18th May 17
Tory Landslide, Labour Bloodbath - Will Opinion Pollsters Finally Get a UK Election Right? - 17th May 17
The stock market sectors which are breaking out in 2017 - 17th May 17
A ‘Must-See’ Chart for Gold and Silver Aficionados  - 17th May 17
Will the SPX Stock Market Final Surge Fail to Appear? - 16th May 17
Claim your FREE copy of Jim Rickards’ explosive book - 16th May 17
GOP Establishment Elite Plots Trump Removal - 16th May 17
Walkers Crisps Pay Packet Cheats, Shoplifters and Staff Conning Customers - 16th May 17

Market Oracle FREE Newsletter

Why 95% of Traders Fail

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.


© 2005-2016 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

Catching a Falling Financial Knife