On Friday, light crude moved higher and gained 1.12%, which resulted in a comeback above the previously-broken 200-day moving average. Is it enough to encourage oil bulls to act in the coming week?
Crude Oil’s Technical Picture
Let’s take a closer look at the charts and find out (charts courtesy of http://stockcharts.com).
Looking at the daily chart, we see that although crude oil moved lower after Friday’s market’s open, oil bulls managed to stop declines and pushed the black gold higher. As a result, light crude came back above the previously-broken 200-day moving average, but did this increase change anything in the overall picture of the commodity?
In our opinion, it didn’t, because despite this improvement, crude oil remains in the blue consolidation under the resistance area created by the 61.8% Fibonacci retracement (based on the entire 2017 downward move), the barrier of $50 and the upper border of the purple rising trend channel.
What does it mean for black gold?
Taking into account an invalidation of the breakout above these resistance levels and its potential negative impact on the price, the sell signals generated by the daily indicators and the size of volume, which accompanied Friday’s increase (it was smaller compared to what we saw during previous downswings) we believe that oil bears have many important reasons to act, which should result in further deterioration in the coming days – especially when we factor in the medium-term picture (the commodity closed the week under the previously-broken long-term green line based on the August and November lows and the medium-term purple line based on the February and April highs).
How low could the commodity go?
If light crude moves lower from current levels, the first downside target will be the last week low, which creates the lower border of the blue consolidation (at $48.37). If it is broken, the next downside target for bears will be around $47.25, where the 38.2% Fibonacci retracement based on the entire recent upward move is. However, taking into account all negative above-mentioned factors, we think that light crude will move even lower and test the lower border of the purple rising trend channel in the coming days (currently around $46.30). Please note that this area is also reinforced by the 50% Fibonacci retracement, which could pause for a bit further declines.
Summing up, short (already profitable) positions continue to be justified from the risk/reward perspective as crude oil remains under the 61.8% Fibonacci retracement (based on the entire 2017 downward move), the barrier of $50 and the previously-broken upper border of the purple rising trend channel. Additionally, Friday’s move materialized on smaller volume than earlier declines, which together with the sell signals generated by the daily indicators suggests further deterioration in the coming days. Naturally, the above could change in the coming days and we’ll keep our subscribers informed, but that’s what appears likely based on the data that we have right now. If you enjoyed reading our analysis, we encourage you to subscribe to our daily Oil Trading Alerts.
Very short-term outlook: mixed with bearish bias
Short-term outlook: bearish
MT outlook: mixed
LT outlook: mixed
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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