Did the situation in the short term change after yesterday’s session? Let’s zoom in on our picture and find out.
Quoting our previous Oil Trading Alert:
(…) light crude dropped to the bottom of the correction that we saw at the turn of March and April once again. If history repeats itself and this support level holds, we may see a corrective upswing in the coming days and the first upside target will be the (…) 200-day moving average (currently at $100.59).
As you see on the daily chart, we noticed such price action yesterday. Although crude oil moved higher, this strong resistance line successfully stopped further improvement for the second time in a row. In reaction to this show of weakness, oil investors pushed the sell button once again and light crude came back below the level of $100. Taking this fact into account, we remain bearish and see this upswing as another verification of the breakdown. If this is the case, and crude oil drops below Thursday low, we think that the price will likely drop to one of downside targets that we discussed in our previous Oil Trading Alert:
(…) In the case of the breakdown under the lower border of the trend channel, declines may push the price to around $97, where the size of the downswing will correspond to the height of the formation. Nevertheless, in our opinion, the confirmation of the breakdown below the medium-term line is more important because it suggests an even bigger move. of its implication. In this case, the correction may be deeper and take light crude to around $94.20. At this point, it’s worth noting that the first downside target is supported by the March low of $97.37 and the latter corresponds to the 78.6% Fibonacci retracement based on the entire Jan.-March rally.
Summing up, although crude oil moved higher once again, this improvement was only temporarily and didn’t change anything in the very short-term picture. As it turned out, the 200-day moving average capped the gains for the second time in a row and serves as the nearest important resistance at the moment. Consequently, in our opinion, as long as there in no invalidation of the breakdown below the previously-broken important resistance lines and the key level of $100, further deterioration in the coming days (or even weeks) is likely.
- Very short-term outlook: bearish
- Short-term outlook: bearish
- MT outlook: mixed
- LT outlook: mixed
- Trading position (short-term): Short. Stop-loss order: $102.50.