Crude Oil Technical Analysis
After sitting on the fence on Monday’s session, we believe we may have found an attractive entry in crude oil following the heavy losses that were anticipated in our prior crude oil trading strategy.
The effects of weak crude oil prices rippled through global markets, forcing the Central Bank of Russia (CBR) to act in the FX markets and raise the interest rate from 10.5% to 17.0% to contain the Russian Ruble (RUB) from depreciating against a basket of currencies.
Based on our market analysis, we are not foreseeing a full recovery in crude oil prices but corrective gains before a resumption of the downtrend as the price reached its key support on a monthly level.
China have taken moderate steps to boost the economy, which are likely to reflect in its economic figures in the first quarter of 2015. We also bear in mind profit realization to become more dominant in the market as we approach the end of the year. These are sufficient fundamentals that may force crude oil to post corrective gains across the board.
Another possibility, although it is highly unlikely, Iran may verbally intervene in the market by bringing the Strait of Hormuz on the table. Previous threats to shut down the strategic Strait of Hormuz caused a gigantic bullish spike in WTI crude oil and Brent. Iran have stated they will take steps in what they consider a plot against the Iranian regime as the Iranian economy greatly depends on crude oil exports. We would highlight that this is against our views as we believe this is a joined-effort to dent ISIS profits from smuggling crude oil to nearby regions.
Crude Oil (WTI) Monthly Chart
Please click on the chart to enlarge:
The orange line indicates the key support that was violated by the market bears. Upon a successful breakout, the bears pushed through multiple layers of support levels, assisted by Saudi Arabia and OPEC’s decision not to interfere in the market. 55.0 (in blue) holds a moderate support level that we believe will hold and give birth to a bullish, technical correction. With technical indicators oversold in multiple time frames, it is difficult to entertain a scenario where heavy losses will be seen in the remaining days of 2014.
We are setting 70.0 (in green) as our target for the long trade in which we would expect to reach within the first quarter of 2015. The latter resistance is noted at 86.40 (in black). The bearish target for the long-term downtrend that originated from the monthly breakout is seen at 36.0 but it is subject to change as a technical confirmation would be required after the anticipated gains.
The protective stop loss order is layered at 50.0. It is not a tight stop but bearing in mind this is a monthly entry we find it rather attractive as a decent Risk-Ratio (RR) is maintained. To summarize, we are executing the long position at market price, protective stop layered at 50.0, setting 70.0 as a our take profit.
We will be issuing updates regarding the long trade at the bottom of this page. If you wish be notified when an update is released we recommend to subscribing to us, which is completely free.
The near-term event that may trigger certain volatility in the market is the Fed monetary policy meeting on Wednesday at 19:00 GMT where the economic projections will also be released. There were continues talks of a rate hike by the Fed, which had previously lead to a strong US Dollar (USD) in the Forex market.
It is no secret the weak USD was a large contributor to the US economic recovery. There is a fair possibility the Fed may change the tone in its Federal Open Market Committee (FOMC) statement that will cloud the expectancy for a rate hike, which will favour a weak USD, inline with our long trade in crude oil and EURUSD.
Another event is due from China on the 19 December, 2014. The National Bureau of Statistics (NBS) announced in a press conference a revision of 3.0% will be made to the Gross Domestic Product (GDP) in 2013. However, the NBS did not clarify whether the GDP will be revised higher or lower. A higher revision may trigger the risk appetite mode in the global markets, which may serve crude oil’s recovery as we have clarified in our trading strategy for the commodity.
17/12/14 UPDATE: Crude oil is trading at 57.00 at the time of this writing. Although we are expecting further gains at the FOMC statement (19:00 GMT) we are closing 10% of the long trade at market price.
17/12/14 UPDATE II: In light of the heavy buying in crude oil (currently trading at 58.30) we are closing 15% of the long trade at market price.
18/12/14 UPDATE: Crude oil is trading at 58.09 at the time of this writing. Although by the book we the protective stop should only be adjusted by the end of the month we are concerned risk-aversion mode will be triggered from Greece, We are therefore shifting the protective stop to the entry and close 20% of the long trade at market price.
23/12/14 UPDATE: We were stopped out at the entry as crude oil corrected lower, trading at 55.36 at the time of this writing. We made a note of the weekly hammer, patiently waiting for a lower price to enter the market. Although the Greece Presidential elections are due on Tuesday, a weekly entery tends to be a fairly strong entry to the market.
Crude oil Weekly Chart
Please click on the chart to enlarge:
We are executing a long trade at market price, protective stop layered at 52.00, targeting 71.35.
23/12/14 UPDATE: Crude oil is trading at 56.66 at the time of this writing following the US Final GDP figure. W are shifting the protective stop to the entry and close 20$ of the long trade at market price.