Who Will Take Control in Crude Oil Market? / Commodities / Crude Oil

Tradingposition (short-term; our opinion): No positions are justifiedfrom the risk/reward perspective.

Althoughthe EIA weekly report showed that crude oil inventories dropped for a ninthstraight week and distillate stockpiles fell more than expected, U.S.production outweighed positive news. But did yesterday price action changeanything in the technical picture of black gold?

Yesterday’sreport showed that crude inventories dropped by 6.9 million barrels easilybeating expectations for a decrease of 3.5 million barrels. This significantdecline was mainly led by a record drawdown of 4.2 million barrels at the U.S.storage hub in Cushing, Oklahoma. What’s interesting, it was the largest weeklydraw since 2004. Despite this bullish fact and a decline in distillatestockpiles, U.S. crude oil production rose 258,000 barrels per day to 9.75million bpd last week, which means that the barrier of 10 million bpd could bebroke quite easily in the coming week.

Thisalso suggests that we may see short-lived moves in both directions before therelease of another government report as investors may want to wait for asignificant fundamental factor that would sink the price of black gold beforeopening big short positions.

Nevertheless,such a pro-bearish signal that could trigger a move to the downside may also betoday's Baker Hughes report. If it shows a bigger increase in the number of oilrigs, oil bears will likely react before today’s market closure or on Monday –similarly to what we saw in the past.

Beforewe see how the number of oil rigs changed in the recent week, let's check howyesterday's price action influenced the technical picture of crude oil.

Crude Oil’s Technical Picture

The long-term hasn’t changed much since our Wednesday alertwas posted, therefore, if you haven’t had the chance to read about the broaderperspective, we encourage you to do so today. Today, just like yesterday, we’llfocus on the daily chart (chartscourtesy of http://stockcharts.com).

Fromtoday’s point of view, we clearly see that the overall situation in the veryshort term also hasn’t changed much, because crude oil wavered the second dayin a row, which resulted in another doji candle.

Althoughneither oil bulls nor oil bears show an advantage yesterday, two bearishcandlestick formations remain in the cards, strengthening the resistance zonecreated by the 200-month moving average at $65.09. Additionally, the CCI joinedthe Stochastic Oscillator and generated a sale signal, giving oil bears anotherreason to act.

Ontop of that, volume that accompanied Thursday price action was tiny compared towhat we saw in the previous days, which confirms oil investors’ indecisionregarding the direction of the next move. Therefore, waiting at the sidelines formore clear signals without open positions seems to be the best decision.

Takinginto account the technical picture of crude oil, we think that oil bears havemore arguments on their side to take control on the market. Nevertheless, itseems to us that as long as investors do not see a strong bearish fundamentalfactor, the price of black gold will be wavering in a narrow range under the200-month moving average.

Finishingtoday’s alert, we would like to add two more comments to the technical pictureof the commodity after yesterday's session.

Firstly,the size of volume that accompanied yesterday’s price action was slightlyhigher than the day before, which suggests that investors could return to themarket to start closing their long positions. It was not a hard sell off,because crude oil lost only 0.13% compared to the previous session, however,such price action raises doubts about the continuation of the upward move inthe coming week.

Secondly,we would like to share a short note about the doji candle with you. If themarket moves in a horizontal trend or potential decreases (just like in ourcase) are only in the initial phase, the doji candle is not very important. However,if the doji appears on the chart after a long upward or downward trend, thereis a high probability that we will see a pullback or even a reversal of thecurrent trend in the near future.

Thisis what we are waiting for, therefore, we will continue to monitor the marketand if we see a reliable show of oil bears strength, we’ll consider opening smallshort positions. Unfortunately (as we mentioned at the beginning of today’salert), it is not excluded that we will have to be patient and wait until nextWednesday to open short positions.

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Nadia Simmons
Forex & Oil Trading Strategist
PrzemyslawRadomski
Founder, Editor-in-chief

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Disclaimer

All essays, research andinformation found above represent analyses and opinions of Nadia Simmons andSunshine Profits' associates only. As such, it may prove wrong and be a subjectto change without notice. Opinions and analyses were based on data available toauthors of respective essays at the time of writing. Although the informationprovided above is based on careful research and sources that are believed to beaccurate, Nadia Simmons and his associates do not guarantee the accuracy orthoroughness of the data or information reported. The opinions published aboveare neither an offer nor a recommendation to purchase or sell any securities. NadiaSimmons is not a Registered Securities Advisor. By reading Nadia Simmons’reports you fully agree that he will not be held responsible or liable for anydecisions you make regarding any information provided in these reports.Investing, trading and speculation in any financial markets may involve highrisk of loss. Nadia Simmons, Sunshine Profits' employees and affiliates as wellas members of their families may have a short or long position in anysecurities, including those mentioned in any of the reports or essays, and maymake additional purchases and/or sales of those securities without notice.

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