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Today’s Trading Edge: Oil retreats slowly after 9-week rally

 

WWM US OIL MAY 20 2015

Oil’s rebound from a six-year low produced a 9-week winning streak that saw the commodity climb from $42.41 to $62.58.   The two-month rally appears to have formed a bearish butterfly pattern at the $61.41 level.  While chart patterns are preferred to produce an immediate reversal, this pattern has provided a key resistance region that could provide ample opportunities for sellers to resume bearish bets. 

In my last oil post, I also explained that if prices continue to rebound, major resistance could come from both the $65.00 level and longer-term bearish trendline.  Both of those levels held and downward price action could be upon us.  Only a daily close above the noted level could open the door for a run towards the $70 handle. 

If downside pressure gains strength, we could see price target the 100-day SMA which is currently trading at the $51.72 level.  Deeper support could come from the $47 zone. 

The trade: Sell oil at $58.75, with a stop loss at $60.75 and take profit at $52.75.  The risk/reward ratio is 1:3

Edward J. Moya

Senior Market Strategist

WorldWideMarkets Online Trading

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