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Chart Of The Day: Oil Likely To Fall Again Despite Inventory, Iran Tensions
Oil prices are looking likely to fall as trade concerns intensify, increasing the likelihood of depressed demand, which suggests there may be an opportunity for contrarians to risk a short position.
This despite the bounce that continues for a third day, on a larger than expected drop in WTI stockpiles, and Iran all but ruling out a meeting with the U.S about ending their nuclear standoff.
But the U.S.-China trade dispute has proven a headwind that overshadows all tailwinds. Weakening global economic data is consistently showing that trade tensions are causing widespread slowdowns, with Germany on the brink of a recession. And the market may be losing faith that a positive resolution is possible as China suggests it has lost faith in Trump.
On the technical front, oil prices are at a crossroads, which also means that contrarian traders would enjoy an ideal entry in case of a resumption of the downtrend.
Today’s oil jump crossed the upper boundary of a falling channel in which oil has been trending since early July. This trend pushed prices below the 200 DMA, which remains above the price, despite the dual headwind of falling stockpiles and Iran’s grandstanding against a U.S. president who likes to grandstand himself.
Considering that the downtrend points lower, and the 200 DMA remains above the price, we see an opportunity to risk a short position with an entry close to a resistance, affording the biggest down-move, if prices do turn around.
Trading Strategies
Conservative traders should stay out of this one, until the trend confirms that supply continues to outpace demand, with prices below the $53, Aug. 26 low.
Moderate traders may short after a long red candle suggests the bounce may be coming to an end.
Aggressive traders may short now, providing they understand the risk and it fits their budget.
Trade Sample
- Entry: $55.80, round number below today’s high
- Stop-Loss: $57.50, Aug. 13 high, the highest price of the previous short-term uptrend since Aug. 7
- Risk: $1.70
- Target: $50.60, above Aug. 7 low
- Reward: $5.20
- Risk:Reward Ratio: 1:3