Trading position (short-term; our opinion): Short positions in crude oil (100% size of the regular trading position) are justified from the risk to reward point of view with $11.22 as the binding profit-take level, and with $30.23 as the stop-loss level.
Oil made a remarkable intraday reversal to the downside on Friday. After another unsuccessful run higher earlier today, prices are again aiming the downside. Here we go again?
Let's start today's analysis with the daily chart examination (chart courtesy of www.stooq.com ).
In our Friday's Oil Trading Alert, we wrote the following:
(...) Yesterday, the futures opened the day with a green gap, which encouraged the bulls to push prices higher. Earlier today, there was one more bullish gap, which suggests that we'll see a test of the upper border of the consolidation or even the upper line of the red resistance gap later in the day.
Nevertheless, as long as the red gap remains open, it continues to serve as the major short-term resistance, which could trigger another reversal in the very near future.
The above chart shows that the situation indeed developed in tune with our assumptions. Although crude oil futures opened Thursday with the bullish green gap, the bulls failed in the following hours. The combination of the upper border of the red resistance gap, the upper border of the blue consolidation and the late-March peaks stopped them, triggering quite a decline.
As a result, the futures not only moved below the green gap created on Thursday, but also below the gap created a day earlier, which made our short positions even more profitable. Additionally, they also invalidated all the earlier tiny breakouts, which suggests that further deterioration may be just around the corner.
Should it be the case and the futures decline from here, the first downside target for the bears would be the downmost green gap created at the beginning of the month, the psychological barrier of $20 and the recent lows.
Summing up, it indeed seems that we'll see lower crude oil values in the following days.
Trading position (short-term; our opinion): Short positions in crude oil (100% size of the regular trading position) are justified from the risk to reward point of view with $11.22 as the binding profit-take level, and with $30.23 as the stop-loss level.
Thank you.
Nadia Simmons
Day Trading and Oil Trading Strategist
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
