Trading position (short-term; our opinion): Short position with a stop-loss order at $59.60 and the initial downside target at $53.28 is justified from the risk/reward perspective.

We wrote these words in our Friday's Alert:

(...) Crude oil has broken above its previous peaks, and closed the September gap. While these are certainly bullish developments, the volume of yesterday's upswing declined. This puts a question mark over the sustainability of higher prices.

This is especially the case when we factor in the fact that black gold has climbed to the strong resistance area created by the 61.8% Fibonacci retracement, and the red and orange gaps. This strong combo is further reinforced by the upper border of the rising green trend channel and the Sept 18-23 peaks.

We went on to mention that the Friday's bearish pink gap:

(...) suggests that the above-mentioned mix of resistances could stop the bulls and trigger a reversal in the coming week.

Such a scenario will be more likely and reliable if we see the commodity close below the pink gap later in the day.

The situation developed in line with the above assumptions, and the bears pushed black gold lower on Friday. As the price finished below the pink gap, it increases the likelihood of further deterioration in the coming days.

Should we see such price action, the way to the lower border of the rising green trend channel would be open.

Summing up, the bulls have issues overcoming the new set of resistances: the 61.8% Fibonacci retracement, and the red and orange gaps. There's also the upper border of the rising green trend channel and the Sept 18-23 peaks in the proximity. As Friday's pink gap remained unclosed, the resistances could trigger a reversal shortly. The short position is justified.

Trading position (short-term; our opinion): Short position with a stop-loss order at $59.60 and the initial downside target at $53.28 is justified from the risk/reward perspective.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist