Trading position (short-term; our opinion): Short positions in crude oil (100% size of the regular trading position) are justified from the risk to reward point of view with $11.22 as the binding profit-take level, and with $29.38 as the stop-loss level. We are moving the stop-loss level lower.

Crude oil launched a ridiculous rally yesterday. Yes, it was ridiculous, because it was clearly based on just one indication from Trump that was not backed by anything, and in the crude oil market, the hearsay about some production cut possibilities, is rather common to hear - and then nothing happens.

Still, even pointless triggers could ignite moves that persist for some time. These moves would then be reversed sooner or later, but the trading damage could be too big to ignore in the meantime. Did we see this kind of situation yesterday?

In short, it's too early to say so. The rally was sizable, but it was just as sizable as the one that we already saw recently. Consequently, what we're seeing right now, could be nothing more than a running correction.

If it is so, then the current price levels would be the worst possible prices at which one could exit the short positions.

If it isn't so, then one should exit the short position as soon as possible.

So, how to know which case it is, and what do we do about it? We are moving our stop-loss for this trade lower, a bit above the March 20 high. If it is something more than a running correction, then crude oil shouldn't have trouble moving above both the declining resistance line and the March 20 high. In this case, we would be quickly taken out of the trade.

However, if this is indeed a running correction and we are going to see another wave down shortly, then the stop-loss will not be activated, and our position will remain intact.

While we can't say which of these scenarios will materialize shortly, the above strategy seems to be optimal given what we do know right now.

Summing up, it might be the case that a bigger corrective upswing has just begun, but it's too early to say so i.a. because its trigger is of a doubtful credibility. We are moving our stop-loss level closer to the current price to make sure we are taken off the market should the position prove to be against the short-term trend. For now, without a breakout above the declining resistance line and the March 20 high, the trend remains down.

Trading position (short-term; our opinion): Trading position (short-term; our opinion): Short positions in crude oil (100% size of the regular trading position) are justified from the risk to reward point of view with $11.22 as the binding profit-take level, and with $29.38 as the stop-loss level.

Thank you.

Nadia Simmons
Day Trading and Oil Trading Strategist

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