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.
Our weekly data and analysis continue to pinpoint an ongoing crude oil decline, with the end of it nowhere in sight for now. In other words, the situation hasn't changed at all.
Corrective moves remain expected because, in these circumstances, when a given market moves in a specific direction, unceasing straight upward or downward lines are impossible. But still, in the case of the current situation with black gold, every assumption might be misleading. Crude oil is taking a prolonged breather right now after the several dollars decline. However, that doesn't mean that any sizeable rebound is going to happen anytime soon.
From what we've seen so far, and based on how crude oil behaved before the recent decline, we still think it will slide down even further.
In the current globalized and hyperconnected economy, a market cannot move in full independence from 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 are stocks and currencies.
Rising stocks continue to be bullish for crude oil, due to better-performing companies that bring greater product demand and transportation. Of course, directly or indirectly, crude oil is involved in many of those processes.
Conversely, a rising USD Index carries on being bearish for crude oil as well (at least from the USD point of view), 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 bode very well for our profitable short positions in crude oil, but it's not the most bearish signal currently available.
Currently, the most bearish indicator is that crude oil declined even before the above-mentioned USDX strength and general stock market weakness occurred. 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 view of the fact that the crude oil outlook remained the same, let us refer to our crude oil chart from September 9th for more details.
We already know that in early June, 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 genuinely rally for months (! - since its June top), and decline by only a few dollars 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, just like what it's been doing for the past week.
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. When a new weakness in the stock 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
