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Today’s Trading Edge: Oil continues to respect 50-day SMA

Posted by Edward Moya on Sep 11, 2015 9:16:43 AM

Last night was a relatively quiet night for the FX market as market participants await next week’s FOMC decision. One of the bigger moves that did occur was a 2.74% drop to $44.66 for oil prices. The selloff was triggered after Goldman Sachs reduced its crude forecast, as concerns for the oil market to remain oversupplied into 2016. Goldman lowered its 2015 U.S. crude oil forecast to $48.10 a barrel from $52 and the 2016 estimate to $45 from $57.  The big headline however was that the investment bank said that $20 oil is possible.    

Price action on the oil daily chart shows that the recent consolidation from $43.21 to $49.33 is also respecting the 50-day SMA. While oil prices did receive a boost at the end of last month after the Energy Information Administration reported lower production occurring in the US for the months of May and June, the commodity remains excessively oversupplied.  

Earlier this month, I identified that a key trading range may form between the $40 and $55 zone. That range may now become $35-$50.  

If we see a resumption of the bearish trend, initial support could come from $40.50, which is where we could see the formation of a bullish Gartley pattern. If valid, we could see price find tentative support and a slight rebound that may target the $45 area. A deeper selloff could find major support from the 2015 low of $37.75.  

If we see bullish momentum return, the psychological $50 handle could provide initial resistance, followed by the 200-day SMA.

The trade: Sell oil at $44.75, with a stop loss at $45.75 and take profit at $40.75. The risk/reward ratio is 1:4

Edward J. Moya

Senior Market Strategist

WorldWideMarkets Online Trading

Topics: commodity, US Oil, West Texas Intermediate crude oil, $OIL, oil price

 

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