Three reasons to sell Brent | 15 July 2016

Forecast for the week 11 - 15 of July:

XAU/USD:

The six trading weeks in a row has been closed by the precious with growth. Thus, many traders believe correction is inevitable. This week gold will still be in demand due to reduced risk appetite. Despite the confident performance of the US stock market in the past trading week, this growth can stop very quickly, because this week US corporates release their reports and market participants expect weak data on the majority of leading corporations. It is impossible to forget about problems of the European banking sector: German and Italian banks have troubles because of the large number of bad assets in their balance sheets. Another risky asset is oil, which may get under the sales on expectations of surge of the production volume in the US and dumping on the part of Saudi Arabia. This week we should open Buy positions on drop of quotations to 1360/1348 and take profit at 1385.

Brent:

Based on results of the last trading week, quotations of the black gold slipped by 7.7%. The last time such a strong decline was observed in January, when the capital flew from risky assets because of fears about China's economy. This week we will see the sale of oil again for three reasons. First, on Friday, Baker Hughes reported an increase in the number of drilling rigs in the United States and Canada by 10 and 2 units, respectively. Over the past five trading weeks, in the United States 35 drilling rigs had been put into operation: the process is not an incident, we are dealing with the trend. This trend, in turn, will cause an increase of the production volume in the second half of the summer, which will affect price of black gold. Second, last week, Saudi Arabia in the face of Saudi Aramco company announced new discounts for customers from Asia and North America that will come into effect from August 1, 2016. Dumping was tried by the Saudis the summer of 2015 and then the quotations of oil dropped. History may repeat this time. Third, strengthening of US dollar usually puts price of oil under pressure. This week we should open Sell positions on growth of quotations to ​​47.20/48.50 and take profit around 45.05.

S&P500:

USA open a new season of corporate reporting. This week we'll see reports for the second quarter from such corporates as Alcoa, BlackRock, Delta Air Lines, Citigroup, JPMorgan, Wells Fargo&Co. All companies are expected to show decline in net profit compared with the same period of 2015. In the first quarter of 2016, the total corporate profits in the US decreased by 5.6% y. In general, the four quarters in a row, the US corporate profits has been dropping and this quarter the negative trend will continue against the backdrop of a global slowdown. However, if we turn to dynamics of S&P500, we'll find that investors are optimistic: the market is one step away from historic Highs. In my opinion, this area ​​will be used by investors to close long positions, which will cause a drop of quotations. This week we should open Sell positions on growth of quotations to 2136/2146 and take profit around 2082.