Crude Oil Under Pressure

Briefing on Crude Oil

Financial instrument: Crude Oil

Title: Crude Oil Under Pressure

Timeframe: Daily

Session: American

Trend: Down

Trend Confirmation: Alligstor, Exponential Moving Average, Price Action, Momentum Oscillator, Awesome Oscillator

Momentum: Awesome and Momentum Oscillator below zero

Support Levels: 76.851(S1), 75.404 (61.8%), 73.818( S3)

Resistance Levels: 80.063(Up Fractal), 81.490 (R2), 82.917 (R3)

Trading Strategy: Sell on Down Fractals

Introduction

Crude Oil has been in a downward trajectory since April 17, when the price closed below the Down Fractal of 84.567. However, the Down Fractal was formed below the Alligator’s Lips, and the Awesome Oscillator (AO) was still above the zero line; there was no confirmation. Subsequently, both indicators confirmed the breakout fractal of 81.528, which signaled a sell entry. Additionally, it’s noteworthy to mention that all three Alligator lines point downwards while they are also aligned for a downtrend. Employing technical analysis, particularly the Alligator indicator, we aim to discern potential entry points, protective stop loss levels, and three profit-taking levels for traders considering positions in this currency pair.

Alligator Indicator Overview

The Alligator indicator, developed by Bill Williams, comprises three smoothed moving averages with distinct periods:

• Jaw (blue line): 13-period SMA shifted 8 bars into the future.
• Teeth (red line): 8-period SMA shifted 5 bars into the future.
• Lips (green line): 5-period SMA shifted 3 bars into the future.

Technical Analysis

Trend Identification

• Currently, the price is below the Lips; the Lips below the Teeth and the Teeth are below the Jaw. All three lines point downwards, indicating a continuation of the downward direction.
• The Alligator indicator assists in identifying trends:
  • Up Trend: Lips above Teeth, Teeth above Jaw.
  • Down Trend: Lips below Teeth, Teeth below Jaw.

Potential Entry Points

• Sell Entry: When the Lips cross below the Teeth and the Teeth cross below the Jaw, it suggests a potential downtrend. Consider entering a sell position upon a confirmed break below a Down Fractal or significant support level.
• Buy Entry: Conversely, if the Lips cross above the Teeth and the Teeth cross above the Jaw, indicating an uptrend, consider entering a buy position upon a confirmed break above a notable resistance level or Up Fractal.
• Sell below 77.030: A potential Sell entry is seen below the latest Down Fractal (at the time of writing).

Protective Stop Loss

Mitigating risk is crucial. Set a protective stop loss to limit potential losses if the market moves against the trade.

• Sell Trade: Place the stop loss slightly above the Lips, Teeth, or Jaw.
• Buy Trade: Place the stop loss slightly below the Lips, Teeth, or Jaw.
• 81.490: The initial stop loss for a potential Sell trade is set above the Jaw at 81.490. 

Potential Profit Levels

Establishing profit targets is essential for effective risk management:

• 75.404: The first profit target is set at 75.404, which represents the 61.8 percent Fibonacci Retracement drawn from the swing low of 67.708 to the swing high of 87.813.
• 73.818: The second target could be set at 73.718, aligning with the R3 weekly Pivot Point.
• 67.708: The third target stands at 67.708 US Dollars per barrel, representing the weekly low marked on December 10.

High Impact Economic Events

• Tuesday 12:30 pm (GMT+0): Core PPI m/m(USD)
• Tuesday 12:30 pm (GMT+0): PPI m/m (USD)
• Wednesday 01:30 am (GMT+0): Wage Price Index q/q (AUD)
• Wednesday 12:30 pm (GMT+0): Core CPI m/m (USD)
• Wednesday 12:30 pm (GMT+0): Core Retail Sales m/m (USD)
• Wednesday 12:30 pm (GMT+0): CPI m/m (USD)
• Wednesday 12:30 pm (GMT+0): CPI y/y (USD)
• Wednesday 12:30 pm (GMT+0): Empire State Manufacturing Index (USD)
• Wednesday 12:30 pm (GMT+0): Retail Sales m/m (USD)
• Thursday 01:30 am (GMT+0): Employment Change (AUD)
• Thursday 01:30 am (GMT+0): Unemployment Rate (AUD)

Conclusion

US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve), expected to be released this coming Wednesday, will possibly provide direction for Crude Oil. In summary, the “black gold” is following a downward trend, as confirmed by the Alligator and the Awesome oscillator. All three lines, namely Lips, Teeth, and Jaw, point downwards, indicating that the downward trend is expected to continue. Traders can use the Alligator indicator in technical analysis to identify trends, potential entry points, and profit-taking levels in the precious commodity. However, it’s important to complement technical analysis with fundamental factors and market sentiment for a well-informed decision-making process.