Oil Trading Alert: One swallow doesn't make a summer

On Friday, crude oil (NYMEX:CLM14) gained 0.72% as stronger-than-expected U.S. employment data and ongoing concerns over tensions between Russia and Ukraine weighted on the price. In this way, light crude rebounded and hit an intraday high of $100.14. Did this rally change anything in the overall outlook?

On Friday, the Labor Department showed that the U.S. economy added 288,000 jobs in the previous month, well above expectations for a 210,000 increase. The report also showed that the U.S. unemployment rate dropped to 6.3% in April, while analysts had expected a fall to 6.6%. In reaction to these better-than-expected numbers, the commodity rebounded and moved above the key level of $100. Although the U.S. economy added more new jobs than expected (which suggests more workers on the roads and stronger fuel demand), the record-high stockpile continued to cloud the outlook for higher prices. As a reminder, on Wednesday, the EIA showed in its weekly report that crude oil inventories rose once again and hit an all-time high of 399.4 million barrels. 

Having discussed the above, let’s move on to the technical changes in crude oil (charts courtesy of http://stockcharts.com).

 

Looking at the weekly chart, we clearly see that the situation hasn’t changed much as crude oil still remains below the lower border of the triangle, the psychological barrier of $100 and the 50-week moving average. Although the breakdown is not confirmed, in our opinion, furter deterioration is likely to be seen. Therefore, the bearish scenario from our Oil Traing Alert posted on Wednesday is up-to-date:

(…) if the commodity extends losses and drops below the psychological barrier of $100, we will likely see further deterioration and a drop even to around $95, where the medium-term support line (based on the June 2012 and January 2014 lows) is. At this point, it’s worth noting that the CCI and Stochastic Oscillator generated sell signals, which suggests that another attempt to move lower should not surprise us.

Once we know the situation from the weekly perspective, let’s zoom in on our picture and move on to the daily chart.

 

Next Page: Short term vs. long term outlook.

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