Trading position (short-term; our opinion; levels for crude oil's continuous futures contract): Full (100% of the regular position size) speculative short positions in crude oil are justified from the risk to reward point of view stop loss $45.63 at and $30.22 as the initial target price.
Considering the entire previous week of crude oil decline, and in tune with our previous analysis, it seems as though the drop persists for a second week in a row, with all the signs pointing to an unpredicted end to the slide. In short, the situation remains unchanged, the decline stays up-to-date, and our short-term position remains profitable.
We continue to await the mandatory corrective moves, given the fact that no stock can move in a straight upward or downward line forever. In spite of that, you can't rely on the assumption in the current state of affairs with black gold. At the moment, after the decline of several dollars, crude oil is still taking a prolonged breather. But, that doesn't mean that the fast rebound is probable.
After assessing the entire situation, and predicated on how crude oil behaved before the present decline, we remain convinced that the slide is here to stay for a little while longer.
We are all aware that in the current economy, no market is entirely autonomous. Crude oil, as the most versatile marketplace commodity, is not excluded from that. On that account, the two markets that the black gold often looks up to the most are stocks and currencies.
The best-performing companies that drive increasing product demand and transportation keep the uprising stocks bullish for crude oil. And of course, directly or indirectly, crude oil is inevitably involved in many of those activities.
Moreover, a rising USD Index carries on being bearish for crude oil (at least from the USD standpoint), as the currency crude oil is priced in.
The USD Index is still after a short-term breakout, and the S&P 500 moved below its previous 2020 high, nullifying its breakout. That is an excellent omen and a confirmation for our continuous profitable short positions in crude oil. However, it's not the most bearish signal currently at hand.
At this time, the most bearish indicator is that crude oil dropped even before the above-mentioned USDX strength and general stock market weakness occurred. Even though the USD Index had been in a drawdown and the S&P 500 had been rallying previously, crude oil refused rallying.
To provide you with more context, and considering that the crude oil outlook remained the same, let's look at our crude oil chart from September 9th for more details.
From our perspective and according to the data that we've analyzed, we wrote the following:
Back in early June, crude oil's significant growth came to a halt instead of rallying. Since then, it has consolidated (mostly) below the 61.8% Fibonacci retracement level based on the previous 2020 decline and below the early-2020 low. As a result, the black gold had shown significant frailty for weeks, a drop that is entirely not surprising given the above.
As such, crude oil became more vulnerable to the bearish stock market or bullish USD Index signals. And now, it just received both of them.
Technically, crude oil corrected to the 61.8% Fibonacci retracement; however, it is currently declining once again. The strong resistance stayed on, and consequently, the price turned south.
For now, the conclusion that crude oil would refuse to rally genuinely for months since its June top, and decline by only a few dollars, remains! Undoubtedly, black gold declined, but only as a response to tiny USDX and general stock market moves. As these moves continue to happen, crude oil is likely to intensify them in the future as well, just like what it's been doing for the past two weeks.
In summary, in line with its technical indications, stock position, and USD Index indications, the short-term outlook for crude oil remains bearish. This is reinforced whenever a new stock weakness emerges, which is when crude oil is likely to get another significant bearish push - something that will happen very soon.
As always, we'll keep you - our subscribers - informed.
Trading position (short-term; our opinion; levels for crude oil's continuous futures contract): Full (100% of the regular position size) speculative short positions in crude oil are justified from the risk to reward point of view stop loss $45.63 at and $30.22 as the initial target price.
In the case of the futures contracts that are farther than the current contract, we believe that adding the premium (the difference between the July and other contracts) to both: stop-loss and initial target prices is justified.
Thank you.
Nadia Simmons
Day Trading and Oil Trading Strategist
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
