Oil Bulls Attempt To Repair Yesterday’s Damage

We have seen a pretty sharp oil reversal yesterday. The U.S. session sent oil bulls packing. Not giving up, they’re attempting a comeback today. Geopolitical news to their rescue: the drone attacks on key Saudi pipelines. Emboldened by this tailwind, do the oil bulls stand a chance of reversing the tide of recent declines?

Let’s take a closer look at the chart below (charts courtesy of http://stockcharts.com).

Crude oil has moved higher during yesterday’s session, there’s no debating that. However, it gave up all its gains and then some, powerful reversing lower. Its price is still trading below the 50-week moving average.

Then, there are the sell signals by the weekly indicators. Finally, the volume of last week’s decline was higher than that of the preceding week. All these factors suggest that another move lower may be just around the corner.

The daily chart provides more clarity. Crude oil moved sharply higher in yesterday’s early U.S. trading, but the resistance area created by the mid-April lows stopped the buyers. The price reversed sharply lower.

This looks like another verification of the earlier breakdown below this support-turned-resistance. It suggests deterioration in the coming days, today’s modest upswing notwithstanding.

Lower oil values will be however more likely and reliable only if black gold drops below the lower border of the blue consolidation and closes the day beneath it. To do so, the bears have to break below both the 50 and 200 day moving averages and also close the horizontal purple price gap. Until then, short-lived moves in both directions shouldn’t surprise us.

Summing up, the outlook for oil remains bearish. Oil has given up all its yesterday’s early gains and today’s modest upswing doesn’t change the picture. The fact is that oil is still trading inside the blue consolidation. The bears look to be holding the upper hand as the red horizontal resistance line (it's based on mid-April lows) has reliably kept yesterday’s gains in check. The position of the weekly indicators supports the downside move. The bears’ first objective is to break below both the daily moving averages. The short position continues to be justified.

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Nadia Simmons

Forex & Oil Trading Strategist

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA 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, Przemyslaw Radomski, CFA 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. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA 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. Przemyslaw Radomski, CFA, 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.