Early in NY, market investors returned from the Labor Day holiday and US Oil prices traded lower as Monday's transactions will be processed with Tuesday's for settlement purposes. Brent crude prices were lower yesterday and slightly higher today.
West Texas Intermediate for October delivery rebounded in Europe after both Chinese stocks rallied and the euro zone economy strengthened 1.5%, much improved from the prior reading of 1.2%. Other positive news also came when the Federal Statistical Office (Destatis) reported, "German exports increased by 6.2% and imports by 6.1% in July 2015 year on year." As risk appetite improved early in the morning, oil rallied from $44.20 to $45.88, before selling off once the U.S. trading session began.
Price action on the US oil daily chart shows the recent consolidation pattern continues to respect the 50-day SMA. While the outlook for oil prices remain bearish, we may see a rally in the short-term rally target a move towards the psychological $50.00 handle. If we continue to see further bullish momentum, major resistance may come from a potential bearish Gartley pattern at the $52.47 area. If valid, we may see a resumption of the bearish trend.
If the current conoslidation pattern breaks lower, we could see major support come from the $35.50-$37.75 zone.
The Trade: Sell US Oil at $52.45, with a stop loss at $53.45, and a take profit at $47.45. The Risk/Reward ratio is 1:5.
Edward J. Moya
Senior Market Strategist
World WIde Markets Online Trading