US oil prices rallied early in NY and respected a key trendline that extends back to the key high made last September. Prices were under pressure earlier after Saudi Arabia reaffirmed their position to make no reductions in production. The downward trend is expected to resume within the next few weeks as crude inventories are coming closer to capacity limits. Until we see a reduction in output, prices could remain bearish until the $39.00 zone.
Price action on the 4-hour oil chart shows that recent slide extending back to the March 5th high is finding a confluence of technical support around the $46.00 handle. If bullish momentum is able to have two candles close above the 50-period SMA we could see a continued sideways consolidation here. Major resistance will come from the 50-day SMA which is currently trading at the $48.53 level. Any rally that is not triggered by a geo-political risk event is likely to be sold into.
If downward momentum prevails and breaks below the longer-term trendline and 50-pd SMA, we could see a quick fall towards the January low region of $43.58. Critical support will remain the psychological $40 handle.
The trade: Sell oil at 44.50, with a stop loss at 45.50 and take profit at 41.50. The risk/reward ratio is 1:3
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading