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 moved sharply higher in today’s pre-market trading, which is likely the initial optimistic reaction to the outcome of the U.S. election combined with the market’s response to the very promising Covid-19 vaccine test results. The initial reaction doesn’t have to change anything though. Let’s keep in mind that after the 2016 elections, crude oil moved in a volatile manner intraday and declined in the days following.
Did today’s sharp upswing change anything from the technical point of view?
It didn’t. The volatile nature of the move and the analogy to the previous first session after the U.S. presidential elections suggest that one should be skeptical toward today’s pre-market action. Crude oil has recently pushed the small breakout above the 61.8% Fibonacci retracement, and it invalidated the move above the September highs, and it could easily do this once again.
If crude oil ends today’s session without declining, the outlook might change, but so far, the points that we made previously, remain up-to-date.
Most importantly:
The situation remains similar to what we’ve witnessed in Q1 2020, not just the breakdown in crude oil, but the fact that it had first corrected slightly above the 61.8% of the preceding decline and that stocks were forming a double-top pattern.
Of course, we’ll be aware of the final point (stock’s double top) only after they decline further (and they are moving higher today). However, the shape of the price moves (lower part of the above chart) is already similar.
To summarize, for the upcoming weeks, the outlook for crude oil remains bearish. If crude oil is able to keep today’s pre-market strength for longer, the above might change, but for the time being, the bearish outlook remains intact. We’ll have more to tell you after today’s session is over and we have today’s closing price.
As always, we’ll keep you, our subscribers well 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 the future contracts that are more distant than the current contract, we think adding the premium (the difference between the July and other contracts) to both: stop-loss and initial target prices is justified.
Thank you.
Przemyslaw Radomski, CFA
Editor-in-chief
