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Despite prices finishing higher, the oil bulls took quite a beating yesterday. With most of their intraday gains gone, the candlestick smacks of some downside to come. And certainly, that's what we're seeing right now. But the bigger question is whether the outlook has clarified.

Let's start with the daily chart examination (charts courtesy of http://stockcharts.com and http://stooq.com ).

Let's quote our yesterday's oil commentary. We mentioned that:

(...) crude oil futures opened (...) with another bullish gap and then went on to extend gains a bit. The bulls approached the upper border of the red gap created at the end of the previous month.

Despite this improvement the buyers stumbled and didn't manage to hold gained levels. A small pullback followed, and the futures slipped to the lower border of the gap created at the beginning of the day that is based on yesterday's close at $53.49. At the moment of writing these words, the bulls are making another run higher though.

What's next?

In our opinion, much depends on whether the buyers manage to keep the advantage achieved at the start of Thursday. In other words, whether the gap would remain open when the day is over. If so, we'll likely see another test of the strength of the nearest red gap or even the 50% Fibonacci retracement (at around $54.57) in the very near future . That could even come later today.

As we see, the situation developed in tune with the above scenario and both crude oil and its futures reached our upside targets. Despite this improvement, the bulls gave up their earlier gains and the commodity pulled back. It had closed the day not only below the 50% Fibonacci retracement, but also below the previously broken upper border of the red gap and the January 29 peak.

In this way, black gold and its futures invalidated the earlier breakouts. The second chart shows just how it got reflected in investors' moods earlier today. Black gold opened with a bearish gap, which triggered further deterioration in the following hours.

Thanks to this price action, the futures closed yesterday's bullish gap, and slipped below $53, which increases the probability that we'll see a realization of the bearish scenario mentioned in our yesterday's Alert:

(...) today's upswing means that crude oil futures reached the level, where the size of the upward move corresponds to the height of the above-mentioned blue consolidation. This increases the probability that some of the bulls would opt to close their positions, which could translate into a reversal.

(...) should the bulls prove weak and don't keep the upside momentum with the bears closing the gap created earlier today, it appears likely that we could see a bigger pullback and a test of the supportive gaps created at the starts of previous sessions, or even the previously broken upper border of the blue consolidation.

Summing up, the situation in crude oil is still relatively unclear at the moment, but it's quite likely to clarify to some extent soon. When in doubt, stay out is the old Wall Street saying and it fits perfectly to the currently situation.

If you enjoyed the above analysis and would like to receive daily premium follow-ups, we encourage you to sign up for our Oil Trading Alerts to also benefit from the trading action we describe - the moment it happens. The full analysis includes more details about our current positions and levels to watch before deciding to open any new ones or where to close existing ones.

Thank you.

Nadia Simmons
Day Trading and Oil Trading Strategist

Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager

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It appeared that the bears firmly took the reins of yesterday's session, but most of their gains were history before the closing bell. Have we seen an important turning point for oil?

Let's start with the daily chart examination (charts courtesy of http://stockcharts.com and http://stooq.com ).

Crude oil opened yesterday's session with the green bullish gap that's slightly below the 61.8% Fibonacci retracement. Although the bulls took the commodity a bit higher after the market open, this strong resistance encouraged the sellers to act.

As a result, the price of black gold moved sharply lower and tested the strength of the pink bullish gap created in the previous week. As it turned out, the bulls were active in this area, and prices staged a comeback. This way, the buyers erased almost the entire earlier decline and closed the day slightly below the opening price.

As a result, the commodity created a bearish candlestick formation - the hanging man about which you could read more in our Tuesday's alert. Nevertheless, as we mentioned in one breath, this is a single-candle formation, and as such it requires confirmation.

Did yesterday's price action change anything in the oil short-term picture? In our opinion, not really, because light crude closed the previous session still below the 61.8% Fibonacci retracement.

Has there been any kind of a very short-term change in crude oil futures before today's market open? Let's take a look at the charts below to find out.

The futures opened today 8 cents above yesterday's close, creating another bullish gap. This positive development triggered further improvement in the following hours, which resulted in a fresh weekly high and a climb above the bearish orange gap created on Tuesday.

This move also brought the futures above the 61.8% Fibonacci retracement.

However, as long as there is no daily close above this resistance, another reversal from here and a decline are likely - especially when we take into account these two factors. First, it's the position of the 4-hour indicators - they are quite close to flashing their sell signals again. Second, it's the proximity to the green resistance line, which runs parallel to the one based on last week's lows.

Connecting the dots, should the futures move lower in the following hour(s) and the bears manage to invalidate the earlier small breakout above the 61.8% Fibonacci retracement, what would be the bears' target? We'll likely see a test of yesterday's low and the above-mentioned green support line based on the last week's lows in the very near future.

Summing up, it seems more likely than not that crude oil is going to decline once again, however given yesterday's strength betting on lower crude oil prices seems too risky at this moment. Moreover, please note that the USD Index and crude oil have been moving in the opposite directions since the beginning of this year, and since the USD Index might be starting a pullback shortly, perhaps crude oil would move sideways or slightly higher before continuing to decline. When in doubt, stay out.

If you enjoyed the above analysis and would like to receive daily premium follow-ups, we encourage you to sign up for our Oil Trading Alerts to also benefit from the trading action we describe - the moment it happens. The full analysis includes more details about our current positions and levels to watch before deciding to open any new ones or where to close existing ones.

Thank you.

Nadia Simmons
Day Trading and Oil Trading Strategist

Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager

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The oil bulls took the center stage last week, and apparently cleared quite a few hurdles in the process. Let's take a balanced look at the recent price action and the trading decision that naturally follows.

We'll start with the daily chart examination (charts courtesy of http://stockcharts.com).

The first thing that catches the eye on the daily chart, is Friday's close above the major short-term resistance - the red gap created at the beginning of the month.

The gap becoming history also had a positive impact on the weekly chart.

We see that the commodity not only closed the gap, but also finished the week above the previously broken lower border of the declining red trend channel, invalidating its earlier breakdown.

Let's zoom out to see what else the recent upswing brought about. The monthly chart below shows that black gold also cleared above another important resistance.

It's the previously broken long-term green resistance line based on the previous lows that crude oil just climbed above.

It might seem that the summary of today's Oil Trading Alert would contain just positive factors that would support the bullish outlook and opening long positions, right?

Taking a second look at all of the above charts reveals that the picture is not as bright for the bulls, however.

Let's go through the points one by one.

First, the daily chart. While the bulls managed to close the gap, they didn't finish the day above the previous February peak. Thus, it continues to serve as a nearest resistance. The tiny breakout turned out to be very temporary as black gold closed Friday's session below it. That's invalidation of the breakout attempt.

Second, recent increases materialized on declining volume, which raises doubts about the bulls' strength.

Third, despite last week's rebound, light crude is still trading below the 61.8% Fibonacci retracement, which also continues to serve as an additional resistance.

Fourth, the sell signals generated by the weekly indicators remain in the cards. However, that's not as important as the fact that the volume accompanying the recent white candlestick was smaller than the volume of previous declines.

Fifth, although crude oil moved above the long-term green resistance line, the month is not over yet, and we should not use this argument as a definitely bullish one at the moment. That can change only once we see the month to close above this important line.

Sixth, the current situation in crude oil futures.

Looking at the above chart, we see that crude oil futures opened Monday well above Friday's close and last week's highs, creating a green gap. Despite this bullish factor, there was no bigger move to the upside. Instead, the futures created a bearish formation - the hanging man.

This candlestick pattern is created as a result of higher market opening, which turns out to be too high. The sellers in such cases take the initiative and push the price down. The buyers, however, pull it up with the last of their strength, and a candle's small body is the result, just as yesterday. Additionally, the candle features a long lower shadow - the longer, the better. It suggests that declines may be just around the corner.

At this point, it is worth keeping in mind that this is a single-candle formation, so it requires confirmation. A great example of such a confirmation is today's price action before the market open. What do we mean by that?

If the market opens lower right after the mentioned hanging man, it creates a bearish gap. Then, it may turn out that there are too many bulls with long positions who would be looking for selling opportunities.

When we take a look at the above chart, we clearly see that such price action took place earlier today. The red gap created at the beginning of the day triggered further deterioration, which resulted in an invalidation of the tiny breakout above last week's peak.

Additionally, crude oil futures closed the green gap created yesterday and slipped to the bullish gap formed on Thursday. It suggests that we'll likely see another bearish candlestick formation after the market closes - the evening star.

On top of that, when we take a closer look at the 4-hour chart below, we can notice even more bearish factors.

Thanks to yesterday's upswing, crude oil futures moved above both the 61.8% Fibonacci retracement that is based on the downward move started on January 29, and the upper border of the rising green trend channel.

Despite these encouraging factors, today's price action thwarted bullish plans for further increases. Why? Because the futures invalidated both breakouts, giving the sellers even more reasons to act. Additionally, the CCI and the Stochastic Oscillator generated their sell signals, suggesting that the way to lower levels is open.

How low could both the futures and crude oil that is likely to open the day with the bearish gap, go in the coming day(s)?

In our opinion, the first downside target will be around $50.65-$50.75 (in the case of the futures), where the first support zone and the 61.8% Fibonacci retracement are.

Nevertheless, taking into account all the above-mentioned factors (not only those marked on the 4h chart), we think that further deterioration and realization of the bearish scenario from our Oil Trading Alert published on Wednesday should not surprise us:

(...) we'll likely see the red gap created on February 3, 2020 tested later in the day.

This resistance was strong enough to stop the buyers five times in a row, which increases the probability that we could see another reversal and decline from here in the very near future. (...)

This scenario is also reinforced by the green zone based on the previous lows (...) Additionally, another move to the downside and a fresh 2020 low would be in line with the Elliott Wave Theory.

Summing up, it seems that it's too early to say that the outlook for crude oil is really bullish. Conversely, it seems that we'll see yet another quick decline in the following days. This move might become a much bigger move if black gold breaks to new yearly lows, but it's too early to say that today. If that is the case, we might enter yet another short position (after taking profits from the one that we are opening right now).

If you enjoyed the above analysis and would like to receive daily premium follow-ups, we encourage you to sign up for our Oil Trading Alerts to also benefit from the trading action we describe - the moment it happens. The full analysis includes more details about our current positions and levels to watch before deciding to open any new ones or where to close existing ones.

Thank you.

Nadia Simmons
Day Trading and Oil Trading Strategist

Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager

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