Trading position (short-term; our opinion; levels for crude oil's continuous futures contract): Small (50% of the regular positions size) short positions are justified from the risk-reward perspective with stop loss $38.63 at and $30.22 as the initial target price.
Crude oil just moved to its 50% Fibonacci retracement level and started to decline in today's session, which suggests that a local top might be in. The emphasis here goes on "might".
These are the bearish factors that we have right now:
- Crude oil's declining momentum. It practically stopped right below the 50% retracement and the lower border of the mid-March price gap.
- Resistance provided by both the above-mentioned levels.
- The shape of today's session so far (reversal) - this is a relatively weak factor as the session is far from being over
- Relatively weak performance of crude oil compared to the general stock market
The bullish factor at hand is the fact that crude oil hasn't invalidated the small breakout above the previous May highs.
The bearish factors are stronger than the bullish one, so overall, it seems that at this time a small (and only a small) short position is justified from the risk to reward point of view.
Summing up, we think that small short positions in crude oil are justified right now.
Trading position (short-term; our opinion; levels for crude oil's continuous futures contract): Small (50% of the regular positions size) short positions are justified from the risk-reward perspective with stop loss at $38.63 and $30.22 as the initial target price. The July contract is trading at about $34.98 at the moment of writing these words.
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