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.
Today's Oil Trading Alert can report little new what we wouldn't have covered yesterday. As the outlook hasn't changed, the below yesterday's observations remain relevant also today:
(...) we emphasized the importance of the upper border of the March price gap, which worked as resistance, and the short-term breakdown below the rising support line. Indeed, they have resulted in declines, and our short position in crude oil is becoming more and more profitable.
The question is how low is crude oil likely to move before we see a sizable corrective upswing.
In our view, the most likely candidate is the area surrounding the $30 level. That's where we have several important support levels:
- The 38.2% Fibonacci retracement level based on the March - June upswing
- The mid-May low
- The April high
- The mid-March highs and lows
While it's not possible to say which of these levels is most likely to stop the decline or at least trigger a pause in it, it seems that one of them will manage to do it. The additional factor that makes us think the next rebound might take place when crude oil moves to $30, is that this price level is visibly below the current price levels. The price of black gold has been consolidating for a few weeks, so it's likely that the move that follows the end of the consolidation is unlikely to be small. The longer the consolidation is, the bigger move usually follows.
The breakdown below the rising short-term support line is what indicates that the consolidation is over. The final confirmation will come when crude oil breaks below late-June lows. We expect that to happen relatively soon, perhaps as early as this week.
Summing up, the short-term outlook for crude oil is bearish based on both the technical indications (in particular, because of crude oil's short-term breakdown and its verification) and on the rapidly increasing Covid-19 cases in the U.S., and we see signs that the bigger decline is likely to finally start.
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 case of the futures contracts that are more distant than the current contract, we think that adding the premium (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
