Oil Trading Alert originally sent to subscribers on September 22, 2016, 10:22 AM.
Trading position (short-term; our opinion): Long positions (with a stop-loss order at $42.95 and initial upside target at $50) are currently justified from the risk/reward perspective.
On Friday, crude oil corrected earlier gains after report that Saudi Arabia did not expect a freezing deal between major crude exporters. Thanks to this news, light crude moved lower and reached the previously-broken levels. Where will the commodity head next?
Let’s examine the charts below and find out (charts courtesy of http://stockcharts.com).
Looking at the daily chart, we see that oil bears pushed the commodity lower on Friday. With this decline, light crude slipped to the previously-broken levels: the black dashed line (based on the Aug highs), the 50-day moving average and the black rising support line based on the Feb and Aug lows, which looks like a verification of earlier breakouts.
If this is the case, crude oil will rebound and reach one of our upside targets in the coming days. How high could the commodity go? We think that the best answer to this question will be the quote from our Thursday’s alert:
(…) the initial upside target would be the red resistance zone, which stopped oil bulls at the beginning of the month (around $47.75-$48.46). If it is broke, we may see a test of the barrier of $50 in the coming week.
Are there any other technical factors that could encourage oil bulls to act? Let’s examine the oil-to-gold ratio.
From this perspective, we see that the ratio declined on Friday, which resulted in a drop to the green support zone (created by the previous lows and the 200-day moving average). As you see this area was strong enough to stop oil bears at the beginning of the previous week, which suggests that we may similar price action in near future – especially when we factor in buy signals generated by the indicators.
What does it mean for crude oil? Taking into account a strong positive correlation between the commodity and the ratio, we believe that higher values of the ratio will translate into higher prices of light crude in near future.
Summing up, on Friday, crude oil declined to the previously-broken levels, which looks like a verification of earlier breakouts. If this is the case, the commodity will rebound from current levels and increase to (at least) the red resistance zone in the coming week.
Very short-term outlook: bullish
Short-term outlook: mixed with bullish bias
MT outlook: mixed
LT outlook: mixed
Trading position (short-term; our opinion): Long positions (with a stop-loss order at $42.95 and initial upside target at $50) 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.
As a reminder – “initial target price” means exactly that – an “initial” one, it’s not a price level at which we suggest closing positions. If this becomes the case (like it did in the previous trade) we will refer to these levels as levels of exit orders (exactly as we’ve done previously). Stop-loss levels, however, are naturally not “initial”, but something that, in our opinion, might be entered as an order.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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