Trading position (short-term; our opinion): Long positions in crude oil (100% size of the regular trading position) are justified from the risk to reward point of view with $29.78 as the binding profit-take level, and with $19.78 as the stop-loss level.
In yesterday's intraday Oil Trading Alert, we opened a new long position. Since then, the market moved even lower, but this additional decline proved to be only temporary. Crude oil moved back up in today's pre-market trading.
Let's start by quoting the relevant part of yesterday's analysis along with the corresponding chart (charts courtesy of www.stooq.com ).
As you see on the monthly chart, the recent price action took crude oil futures to the green support area created by the November 2002, April 2003 and May 2003 lows, which is the last stop before the test of the long-term green support line based on the 2009 and 2016 lows (at around $23).
Slightly below, there is also another support area created by the green bullish gap from March 2002, which could encourage the bulls to fight in the coming days. Nevertheless, should these supports turn out to be a piece of cake for the bears marching south, we can also see a decline to the psychological barrier of $20 or even a test of the lows created at the turn of 2001 and 2002 in the following week(s).
Crude oil moved to $20.52 yesterday, and it rallied back up. At the moment of writing these words, black gold is trading at $23.56, meaning that our positions are slightly profitable. It seems that we didn't manage to open them exactly at the bottom, but still very close to it (given how huge this month's decline is). And the profits on this position are likely to become much bigger shortly.
Of course, the above makes sense only if a local bottom has indeed been formed yesterday. This does seem to be the most likely scenario given the strength of the support levels that were just reached (or broken and then the breakdown was invalidated). There is another technique that suggests that this short-term decline has already ran its course - the Fibonacci extension technique.
Multiplying the previous sizable decline by a factor of 1.618 provides us with a target that was just reached yesterday. Precisely, it was breached, but crude oil quickly reversed after doing so. This makes the outlook even more bullish for the short term.
Summing up, it seems that a corrective upswing in oil has just started. It doesn't mean that the entire big decline is already over (it probably isn't), but it seems that it's about time for crude oil to correct.
Trading position (short-term; our opinion): Long positions in crude oil (100% size of the regular trading position) are justified from the risk to reward point of view with $29.78 as the binding profit-take level, and with $19.78 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
