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.

Crude oil has been consolidating with a downward bias recently, and took a dive earlier today. Is this move to be trusted - is it for real?

These were our yesterday's observations:

(...) Earlier today, black gold futures tested the previously broken lower border of the blue consolidation. This could be considered as a verification of the earlier breakdown below this formation - and should it actually be the case, we'll likely see a reversal and then decline in the following hours.

Analyzing the 4-hour chart, we also added:

(...) thanks today's "increase" crude oil futures also climbed to the upper border of the green consolidation (...) This level stopped the bulls, and triggered a pullback in the following hours.

Therefore it's our opinion that as long as both the above-mentioned resistances remain unbeaten, the way to the north is blocked and reversal may be just around the corner.

Should it be the case and oil moves lower from here, the first downside target for the bears will be yesterday's low of $19.20.

Looking at the above charts, we clearly see that the bulls were quite weak during yesterday's session. They didn't even manage to retest the above-mentioned premarket peak and the previously broken lower border of the blue consolidation marked on the daily chart.

This underscores their weakness, which doesn't bode well for higher values of crude oil and its futures ahead. Actually, it increases the probability of at least a re-test of yesterday's low.

Should this level be broken, the way to the south would open. How low could the futures go should we see further deterioration?

In our opinion, the first downside target will be around $17.50, where the size of the downward move will correspond to the height of the green consolidation seen on the 4-hour chart.

But if this level is broken, we'll likely see our Wednesday's scenario realized:

(...) The next strong support is provided by the 2001 low of about $17, but if it fails, crude oil could slide all the way down to the $11 level. Ridiculous? Yes, but impossible? Absolutely not. Likely? Yes, but not very likely. We might see the final bottom at $17, but it's too early to say that it will indeed be the case. Unless we see some meaningful bullish indication while crude oil is trading close to $17, we'll likely keep our original target for this decline intact.

Summing up, while the situation in crude oil is very tense, the bears are increasingly enjoying the upper hand. It seems that our profitable short positions will become even more so shortly. The sharp move lower is clearly underway as we speak.

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