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.
Crude oil declined once again today, which means that our short positions became much more profitable. So, the question remains - Is crude oil close to bottoming? That seems unlikely, and our bearish outlook remains in place.
Bear in mind that the decline took place right after crude oil failed to rally above its 61.8% Fibonacci retracement (based on the 2020 decline) and its early-2020 low. This happened despite positive news from the general stock market and almost relentless declines in the USD Index.
The USD Index is after a short-term breakout, and the S&P 500 has just moved below its previous 2020 high, nullifying its breakout. This bodes very well for short positions in crude oil, but it's not the most bearish signal available right now.
Arguably, the most bearish indicator is that crude oil declined even before the above-mentioned USDX strength and general stock market weakness occured. Even though the USD Index had been declining and the S&P 500 had been rallying previously, crude oil refused to rally based on these indications.
In lieu, it 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 already shown significant weakness for weeks, a decline completely not surprising given the above.
On the merits of the above, it's quite likely that crude oil will decline more, as the higher USDX and lower stocks moves appears to be only beginning..
Summing up, based on its own technical indications, stock position, and USD Index indications, the short-term outlook for crude oil is a bearish one. Once more weakness in stock emerges, crude oil is likely to get another significant bearish push - and I don't think we'll have to wait for long.
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
