Is The Crude Oil Rally Over?
Trading position (our short-term opinion): Long positions (stop loss at $37.23; initial upside target at $46.90) are justified from the risk/reward perspective.
Crude oil declined on Wednesday only to shoot up with vengeance yesterday, exceeding the previous August highs. Still, crude oil declined a bit before the session was over, so many investors are wondering if the rally is already over – is this the case?
Most likely – no. Let's take a closer look at the chart (charts courtesy of http://stockcharts.com).
After closing the short positions in crude oil on August 1, we were waiting for a bullish confirmation. Subsequently in August 9 Oil Trading Alert, we wrote the following:
From today's point of view, we see that the situation developed in line with the above scenario and crude oil extended gains yesterday. With Monday's increase, the commodity not only increased to our upside target, but also climbed higher and closed the day above the lower border of the black declining trend channel. In this way, light crude invalidated earlier breakdown under this short-term support, which in combination with buy signals generated by the daily indicators and the invalidation of the breakdown under the 200-day moving average and a weekly closure above the long-term black declining line suggests further improvement in the coming days. If this is the case, and crude oil moves higher from here, we'll see an upward move to (at least) the upper border of the black declining trend channel (currently around $46.90) in near future.
In short, the above remains up-to-date, despite yesterday's upswing. The rally was sizable from a day-to-day perspective, but crude oil didn't reach even the closest of the more significant resistance levels. In our opinion – at this moment – it is most likely that crude oil will move to $50 or so and even if it doesn't, a move to a least $47 is still most likely as we don't have anything important enough to stop the black gold before it moves to this level.
Summing up, Tuesday's move lower turned out to be a correction within a short-term move higher. Moreover, yesterday's rally just confirmed it. The short-term outlook remains bullish as the key resistance levels were not yet reached.
As always, we will keep you – our subscribers – updated.
Very short-term outlook: bullish
Short-term outlook: bullish
MT outlook: bullish
LT outlook: mixed
Trading position (our short-term opinion): Long positions (with a stop loss order at $37.23 and initial upside target at $46.90) 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.
Courtesy of http://www.sunshineprofits.com/
Nadia is a private investor and trader, dealing in currencies, commodities (mainly crude oil), and stocks. Using her background in technical analysis, she spends countless hours identifying market trends, major support and resistance zones, breakouts and failures. In her writing, she presents complex ideas with clarity that enables you to easily understand market changes, and profit on them. Nadia is the person behind Sunshine Profits' 3 premium trading services: Forex Trading Alerts, Oil Trading Alerts, and Oil Investment Updates.
Przemyslaw Radomski, CFA, is the founder, owner and the main editor of SunshineProfits.com.