Long oil – Technical Short-Term Opportunity

1Week1Trade

Newbie
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(1) Resistance on 62 euro
(5) US Supply/demand data are in a good momentum for long positions
(2) Market is long
(4) Greece was one reason of the current sell-off, but the situation should be solved soon.
(3) Oil “recovery story”
(6) Fundamentals is so-so, but some tailwinds could occur



Hello readers! This actual period is very “fun” to play the market. A little too fun for me, as a result, this third 1W1T will focus on a nice technical opportunity I found in Oil (Brent here). I don’t want to commit to fundamentals analysis right now. I still have some previous play on indexes (one short Nasdaq doing well and one long Dax doing so-so, but I am still very confident about it), and I don’t have enough conviction on currencies for the moment. Check my previous articles on 1Week1Trade.com

Moreover, the 1W1T (1) was also on a short-term technical oil opportunity, and my scenario went well and the goal was reached. Let’s continue in this way!

Today as I am writing those lines, the Brent has been moving from 63.40 euro yesterday to 62.20 euro right now. That is to say roughly -1.7%.

I think there is a really nice short-term opportunity being long. My goal is 65 euro, the horizon: 1-2 weeks. As for the 1W1T, as soon as the goal is reached I recommend exiting the position, the volatility is very high and things can go South easily. I also recommend a tight stop-loss on on 61 euro, I will explain you why a little later in this analysis.

Here is a chart of Brent since December 2014, just to remind you where we are and from where we are coming.

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We can see a beginning of a “double bottom”. But since May Oil is trading in a range and there is somehow a downtrend.

So why do I think it is a good time for being long?



  • (1) Resistance on 62 euro
Let’s zoom on the graph.

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You can see here that I draw the resistance at 62 (green line) that has been tested twice, the 29th of May and the 6th of June. We are now exactly on the same level.

The intraday chart of the 29th of June is giving the same signal

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You can see that the support was broken around noon (red arrow) but quickly recover, the market test it twice (green arrows) then before moving up (blue arrow).

What I want to show you is that this support is really strong, the different graph (monthly, daily and intraday) are all showing a potential strong rebound on it.

  • (2) Market is long
The market wants oil to go up. I mean, there are a combination of factors that are going in that way. First, the producers are not willing to go down and make a new bottom again. They are now completely aware of the major changes in supply/demand this market has been experiencing and I think they are aware that the “I produce at full power to kill your profit” play is not working. Saoudi Arabia has tried to make american oil producer go for a hard-time. It barely worked.

Moreover, historically, oil has been experiencing V-shape recovery. This story is well-known and is a key driver for oil speculators. A strong rally is price is somehow anticipated, despite different kind of fundamentals.


  • (4) Greece was one reason of the current sell-off, but the situation should be solved soon.

Today’s drop in price was mainly due to the Greece situation. What you should take into account is that this mess is in its final stage now. Either Greece will leave the Eurozone, either it will find an agreement. But in both case it will end a period of uncertainty. Markets don’t really care if Greece stay or leave, but the mere fact that there is uncertainty is enough for adding selling pressure. Once the situation is solved, this selling momentum will quickly loose its steam.


  • (5) US Supply/demand data are in a good momentum for long positions
Last week US supply data were bullish for oil. The production is still decreasing at a good rhythm. I expect this week data to keep showing good numbers. It could be a catalyst for a nice rebound. We will see on Wednesday.


What could go wrong?​
I mainly think about Iran sanctions. Whatever the lift of sanctions, there will be a lift. And it is enough news for investor to sell. A Bloomberg survey shows that Iran produced 2.8 million barrels of crude a day last month, about 1 million less than output before sanctions were imposed. The negotiations are tense, but a last-minute deal is still possible and it would mean a boost in Irans’s oil exports and a big drop in oil prices.
 

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