Trading position (short-term; our opinion; levels for crude oil’s continuous futures contract): No positions in crude oil are currently justified from the risk to reward point of view.
Oil prices fell in early Friday trading, as short-term concerns still weigh on demand. After starting off the year strongly, the question now is: is the black gold running out of steam for now?
When crude oil broke above its late-2020 highs, I wrote that it could rally further in the short term, and that’s exactly what’s been taking place.
However, in today’s (Jan. 22) pre-market trading, crude oil moved below the rising support line based on the previous lows and it seems that the uptrend might be over.
The key word here is “might”. The breakdown is not yet confirmed – it happened just minutes before I started writing these words, so it’s very far from being confirmed.
However, if we see today’s close below the rising support line (at about $52), the short-term outlook for the black gold will once again be bearish. Quite likely bearish enough to justify opening another short position. But – again – it seems too early to do so now.
It could also be the case that crude oil rallies first and rallies to its next resistance (at about $54.66) before really turning south and then declining for weeks.
My previous comments on the broader trends in crude oil remain up-to-date:
Given how ugly the situation might become in the stock market, and how bullish the situation might turn out in case of the USD Index, I don’t see a prolonged uptrend in crude oil prices from here. The biggest opportunity is likely to be in catching the next wave down, but if crude oil proves that it can really be strong in the short run, we might want to catch this short-term move to.
It’s all based on the risk to reward relation – if enough factors point to the same direction, opening a trade might be a good idea, even if it is against the bigger trend. The “don’t fight the trend” rule is useful, but one needs to keep in mind that there are multiple trends in place at the same time – the short-term trend can be different than the medium-term one, and the same goes with the long-term one (or immediate-term one).
To summarize, it seems that crude oil might have already started its next big move lower, but it’s too early to say with bigger certainty. Consequently, we are not yet opening short positions, but we might do so shortly.
As always, we’ll keep you, our subscribers well informed.
Trading position (short-term; our opinion; levels for crude oil’s continuous futures contract): No positions in crude oil are currently justified from the risk to reward point of view.
Thank you.
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
