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What is the outlook on crude oil? Should I take long or short positions?
Anilkumar Vanka
The bounce-back move in the crude oil futures contract on the Multi Commodity Exchange (MCX) from the low of ₹2,879 per barrel last week is significant. Prior to this, the contract was in a strong downtrend from the October high of ₹3,464. A key trend line support at ₹2,875 has halted this downtrend and triggered a reversal. This sends out an early signal that the downtrend in place since October could have ended.
Though the contract faces intermediate resistance at around ₹3,160, the broader view is positive. It is currently trading at ₹3,079. Immediate support lies in between ₹3,030 and ₹3,000. There is a strong likelihood of the contract sustaining above this support zone. A strong break above ₹3,160 will boost the momentum and take it to ₹3,200 initially. A further break above ₹3,200 will increase the likelihood of the rally extending to the next targets of ₹3,300 and ₹3,400.
The bias is bullish for a strong break above ₹3,160 and 3,200 in the coming days as the WTI crude oil futures contract on the New York Mercantile Exchange is looking much stronger. The MCX contract moves in tandem with NYMEX crude. NYMEX crude, which is currently at around $45.7 per barrel, has immediate support at $45. The next strong support is at $42. A rise to test $47 is possible in the near term. A further break above $47 will see the rally extending to $50 and $52 levels once again over the medium term.
The rupee looks vulnerable, having fallen below 68 against the US dollar. This may also support the rise in the MCX crude oil contract.
If you are a trader with a high risk appetite and a medium-term perspective, you can go long in MCX crude oil at current levels. Stop-loss can be placed at ₹2,810 for the target of ₹3,450. Accumulate longs if an intermediate fall to ₹3,000 and ₹2,950 is seen. Revise the stop-loss higher to ₹2,950 as soon as the contract moves up to ₹3,170. Move the stop-loss higher to ₹3,120 when the contract reaches ₹3,220.
Note: The recommendations are based on technical analysis. There is a risk of loss in trading.
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