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.
Adding to the previous week of crude oil decline, it seems as though we're in a continuous drop for a second week in a row, with all the signs pointing to an unpredicted end to the decline. In other words, the situation hasn't changed at all.
Of course, in these circumstances, corrective moves are mandatory and expected when a given market moves in a specific direction. No stock can move in an unflinching straight upward or downward line forever. Nevertheless, in the current situation with black gold, every assumption can't be trusted. Right now, crude oil is taking a prolonged breather right now after the several dollars decline. But, that doesn't mean that you should expect any sizeable rebound to happen soon.
From what we've seen in the past two weeks, and based on how crude oil behaved before the current decline, we continue to believe that the slide is here to stay for a little while longer.
With the current globalized and hyperconnected economy, a market cannot be entirely independent of the rest of the world. Crude oil, as the most versatile marketplace commodity, is not excluded.
The two markets that the black gold often looks up to the most are stocks and currencies.
Uprising stocks remain bullish for crude oil because of the better-performing companies that drive increasing product demand and transportation. Of course, directly or indirectly, crude oil is inevitably involved in many of those activities.
Conversely, a rising USD Index carries on being bearish for crude oil as well (at least from the USD standpoint), because that's the currency crude oil is priced in.
The USD Index is still after a short-term breakout, and the S&P 500 has just moved below its previous 2020 high, nullifying its breakout. That continues to represent a good sign for our profitable short positions in crude oil, but it's not the most bearish signal currently at hand.
At this time, the most bearish indicator is that crude oil plunged 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.
Considering that the crude oil outlook remained the same, let us refer to our crude oil chart from September 9th for more details.
In early June, we already knew that crude oil's significant growth came to a halt instead of rallying. Since then, 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 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.
The conclusion that crude oil would refuse to rally genuinely for months (! - since its June top), and decline by only a few dollars, for now, 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 wtih its own technical indications, stock position, and USD Index indications, the short-term outlook for crude oil remains a bearish one. Whenever a new stock feebleness emerges, crude oil is likely to get another significant bearish push - and I don't think we'll have to wait for any longer for that to happen.
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
