Crude oil heads towards crucial long-term support

Short-term traders can go short at current levels

Crude oil prices have been under pressure since October. The crude oil futures contract on the New York Mercantile Exchange (NYMEX) hit a high of $77 per barrel on October 3 and plummeted over 19 per cent since then. It currently trades around $62 per barrel.

On the domestic market, the contract on the Multi Commodity Exchange (MCX) made a high of ₹5,669 per barrel and reversed sharply lower in tandem with the NYMEX prices. The contract has tumbled over 20 per cent and is currently at ₹4,504 per barrel.

Outlook

The downtrend that began in October is intact. Crude oil prices are likely to extend its fall in the short term. However, a crucial long-term support is ahead which may halt the downtrend.

The NYMEX-Crude Oil ($62 per barrel) futures contract has cluster of resistance in the $65-$67 region. The upside is likely to be restricted to this zone in the near term. As long as the contract trades below this resistance region, a fall to ₹59 or $58 is likely in the short term.

The region between $59 and $58 is a crucial long-term support for the NYMEX-Crude Oil contract. Whether the contract reverses higher from this support zone or not will decide the next move.

A strong bounce from this support zone will have the potential to take the contract higher again to $65 and $67 thereafter. On the other hand, if the contract breaks below $58, the downtrend can then extend to $55 or even $53 over the medium term.

On the domestic front, the MCX-Crude Oil (₹4,504 per barrel) has an immediate support at ₹4,400. A break below it can drag the contract lower to ₹4,200 or even ₹4,000 in the coming weeks. Resistance for the contract is in the ₹4,800-₹4,900 region. The downside pressure will ease and the outlook will turn positive only if the contract breaks above ₹4,900 decisively. But such a strong upmove looks less probable at the moment.

Trading strategy

Short-term traders can go short at current levels and also on rallies at ₹4,600 and ₹4,650. Stop-loss can be placed at ₹4,750 for the target of ₹4,050. Revise the stop-loss lower to ₹4,400 as soon as the contract moves down to ₹4,300.

Note: The recommendations are based on technical analysis and there is a risk of loss in trading.

Read the rest of this article by Signing up for Portfolio.It's completely free!

What You'll Get





Related

MORE FROM BUSINESSLINE


 Getting recommendations just for you...
This article is closed for comments.
Please Email the Editor