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