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The tensions in the oil market are very palpable, and today is no exception to strong moves. Can we talk about a bottom in sight?

Let's take a closer look at the chart below (chart courtesy of www.stooq.com ).

In our Friday's Alert, we wrote the following:

(...) The gap closed the gap, and futures rose slightly above yesterday's high. Despite this superficial improvement, the overall situation in either the short or very short term remains almost unchanged as crude oil futures are still trading inside the blue consolidation around the lower border of the orange resistance gap created at the beginning of the week.

Therefore, as long as we do not see a breakout above the upper line of the formation, or a breakdown under the lower border short-lived moves in both directions are likely.

The above chart reveals that although crude oil futures closed the gap created at the beginning of Friday, the bulls didn't manage to hold gained ground. Today's session started with another bearish gap that we have marked with red for your convenience.

The buyers tried to close it in the following hours, but they failed. A reversal followed, coupled with a tiny drop below the lower border of the above-mentioned blue consolidation.

What does it mean for the futures?

In our opinion, if the bears manage to push them even lower and close the day below the lower border of the consolidation, the way to the recent lows will be open. But taking into account the size of the consolidation, it's very likely that we'll see not only a test of the last week's low, but also a fresh 2020 low at around $25.40.

Why this price point?

It's that in this area, the size of the downward move would correspond to the height of the preceding blue consolidation.

Summing up, we might have a good shorting opportunity once crude oil closes below the recent lows, but at this point the risk to reward continues to favor staying on the sidelines.

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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Available to premium subscribers only.

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