WWM - Analytics

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    Today’s Trading Edge: Oil drops on oversupply concerns and declining Chinese demand

    WWM_US_OIL_FEB_8_2016.jpg

    Oil prices sold off after disappointing Chinese trade data fell to a 10-month low, with exports having the biggest decline since May 2009. Chinese imports also registered a 16th consecutive decline.

    Kuwait’s Oil Minister also stated that Kuwait would consider a freeze only if all producers, including Iran came on board. The freeze plan appears very difficult for everything to line up in favor for it and that could drive oil lower again on oversupply concerns.

    The US Department of Energy also cut their short-term outlook on oil prices to an average $34/bbl in 2016 and $40/bbl in 2017.

    Price action on the US oil daily chart shows that the recent rally may be over after tentatively forming a bearish butterfly pattern and closing below the 100-day SMA. Point D was targeted slightly ahead of the 141.4% Fibonacci expansion level of the X to A leg and the 200.0% Fibonacci expansion level of the B to C leg. If we see a break of the green uptrend line, price could target the $32.00 region.

    If we see bullish momentum return, key resistance may come from the $38.50-$40.00 zone.  

    The trade: Sell oil at $36.75, with a stop loss at $38.75 and take profit at $32.75. The risk/reward ratio is 1:2


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