Trading position (short-term; our opinion): Short position with a stop-loss order at $57.86 and the initial downside target at $53.28 is justified from the risk/reward perspective.

Let's dive right into the chart below (chart courtesy of www.stooq.com ) and assess where crude oil price is headed next.

While crude oil bulls made a strong run yesterday, the futures gave up most of their gains before the closing bell. Black gold closed below both key resistances: the red line and the upper border of the gap. As a result, the late-September gap remains open, continuing to support the sellers.

Of note however, yesterday's green gap is also open, supporting the bulls in turn. And they have moved the oil prices up earlier today. Let's quote our yesterday's observations:

(...) Today's open is marked by the green gap, which has sparked further bulls' gains. Prices have reached the red resistance line based on its previous peaks, and also the orange gap that has been open since the end of September.

Let's take a closer look at the chart: there's a potential cup and handle formation (marked with red lines for your convenience). Should crude oil futures move higher from here and close above the red line, the probability of further improvement would increase. Then, we would consider closing short positions.

Summing up, Friday's oil reversal marks a potential cup and handle formation, and should black gold close above the red line and put the late-September orange gap into jeopardy, we'll consider closing our short positions. For now however, they remain justified.

Trading position (short-term; our opinion): Short position with a stop-loss order at $57.86 and the initial downside target at $53.28 is justified from the risk/reward perspective.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist