Trading position (short-term; our opinion; levels for crude oil’s continuous futures contract): Short positions will become automatically justified from the risk to reward point of view, when crude oil futures move to $62.24. In this case, we will automatically view a short position with $67.62 as stop-loss and $44.12 as initial price target as justified. In other words, I’m lowering the entry price level.
Oil’s next price move will hinge on today’s OPEC+ meeting. We’ll wait to see what happens. Meanwhile, the entry price target has been updated.
Crude oil appears to be forming a head-and-shoulders top, which means that it might not move as close to the previous high as I previously thought before reversing. Consequently, I’m moving the entry price level slightly lower.
When crude oil broke above its February 2020 high, I wrote that it could move even higher in the short term – and it did. In fact, it even attempted to break above the 2020 highs. Crude oil managed to do so in terms of the daily closing prices, but not in terms of the intraday prices. The invalidation of this breakout triggered a decline, but the latter was followed by another quick move higher. And that’s how the H&S pattern might be forming here.
Crude oil has been rallying without a more visible decline for months and no market can move up or down without periodic corrections. This, by itself, is not yet a reason to expect prices to decline, but that’s not the only reason that we have. The very existence of the strong resistance provided by the yearly high is an important reason for one to expect a decline from either the current levels, or from nearby ones.
The other reasons are not visible on the above chart, as they come from other markets. Crude oil is not 100% linked with any other market, but it does tend to move in tune with the general stock market and against the USD Index. After all, it’s priced in the U.S. dollar.
Now, the medium-term trend in the USD Index has almost certainly reversed, and it might have also reversed in case of the general stock market. Consequently, crude oil’s chances for breaking higher here seem pretty slim.
On a short-term basis, we could see crude oil move even to the upper rising line – at about $63.20 – without invalidating the H&S pattern. In fact, as long as crude oil stays below its previous 2021 high ($63.81), the pattern will remain intact.
However, moving all the way up to the upper line (parallel to the neck level of the pattern) is not the most likely outcome. Crude oil could reverse sooner, perhaps at the Feb. 18 intraday high, which is why I put the entry level slightly below this level.
All in all, it seems that opening a speculative short position will be justified as soon as crude oil moves a bit higher.
To summarize, we’re preparing to open speculative short positions in crude oil, as it seems that the days of its rally are numbered.
As always, we’ll keep you, our subscribers well informed.
Trading position (short-term; our opinion; levels for crude oil’s continuous futures contract): Short positions will become automatically justified from the risk to reward point of view, when crude oil futures move to $62.24. In this case, we will automatically view a short position with $67.62 as stop-loss and $44.12 as initial price target as justified. In other words, I’m lowering the entry price level.
Thank you.
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
