Trade view /
24 May 2016 at 8:14 GMT
Since OILUSJUL16 failed to test $25 in February this year, it has been steadily rising and is now fast approaching the key resistance level of $50 which had been a major support level that initiated the huge surge back in 2007 and which converted to a solid resistance level in the GFC period; and most recently in October last year. This V-shape bottoming price action can be usually interpreted as a reversal pattern however, unless we see a genuine breakout above $50, this level is expected to restrict further strength as we have witnessed declining volume. Furthermore the rate of change (ROC) momentum indicator shows upside momentum had been fading during May while the price of oil was rising.
If we examine the up-move from the January '16 low to the January '16 high and apply this range to the February '16 low (US $26.03) we witness decent overhead resistance levels at the following extension levels: 161.8%, 200% and 261.8%.
At the 200% extension level we saw selling occur just below the $42.00 level which saw crude pull back 16%. With the strength in the US dollar index expected to continue and with expectations that crude will catch up with the selling seen in copper these past 3 weeks, we are looking at a sell opportunity at the 300% extension level which hovers just below the psychological level of $50.
Management and risk description
We use profit targets and stop losses to manage our risk.
Sell OILUSJUL16 (CFD)
Entry: Limit @ 49.85
Stop loss: 51.15
Target 1: 42.00
Until either our stop loss or profit targets are hit
Charts source: Saxo Bank. Create your own charts with SaxoTrader click here to learn more
— Edited by Clare MacCarthy
Non-independent investment research disclaimer applies. Read more