Trading position (short-term; our opinion): Short positions with a stop-loss order at $65.23 are justified from the risk/reward perspective.
On Friday, crude oil moved lower after the market’s open weakened by a stronger U.S. dollar. Despite this move, the commodity reversed and rebounded in the following hours, gaining 0.85% and closing the day above $59, but did this upswing change anything?
On Friday, the Department of Labor reported that the U.S. economy added 223,000 jobs in April, slightly below expectations for an increase of 224,000. The report also showed that the U.S. unemployment rate slipped to 5.4% in the previous month from 5.5% in March. These positive numbers supported the USD Index, which made crude oil less attractive for buyers holding other currencies. As a result, the commodity hit an intraday low of $58.14. Despite this drop, light crude rebounded in the following hours and climbed to $59.90 after Baker Hughes showed in its weekly report that the number of oil rigs in the U.S. fell by 11 to 668, marking the 22nd consecutive week of declines.
Although the number of domestic oil rigs declined to its lowest level since September 2010, the pace of decline continues to slow, which raised worries over another build in crude oil inventories and pushed the price little lower. Will we see further deterioration in the coming week? (charts courtesy of http://stockcharts.com).
Looking at the long-term chart, we see that the overall situation hasn’t changed much as crude oil is still trading under the 200-month moving average and the long-term blue line. This means that Thursday’s invalidation of the breakout above them and its negative impact on future moves is still in effect.