Trading position (short-term; our opinion; levels for crude oil’s continuous futures contract): Full short position in crude oil with $28.12 as the initial target price, and $50.42 as the stop loss level is justified from the risk to reward point of view.
Crude prices stabilized a little on Wednesday, but strong concerns remain as COVID-19 enters its winter wave and a new strain of the virus emerges, thus spelling the beginning of what could be a nuclear viral season. The points we have made previously remain valid, hence our analysis and trading positions remain unchanged from Thursday (Dec. 17), although the chart was updated on Tuesday (Dec. 22).
Oil reached a nine-month high last Thursday and hit our target levels, thus triggering new short positions.
Crude oil’s ability to decline despite the lack of a comeback in the USD Index is bearish. On Friday (Dec. 18), the USDX continued to weaken after Thursday’s FOMC meeting, when it fell below the 90-level for the first time since 2018.
The early March high in crude oil futures was $48.66 and last Thursday’s overnight high was $48.60. That’s close enough for one to say that the high was touched, and that it proved to be a valid resistance.
I previously commented about the possible upside targets in the following way:
The next resistance is at about $48.7 – the early-March high. And the next target – if crude oil manages to rally above it – would be the February high of about $54.7.
Since the moves to these price levels became even more probable – while simultaneously it looks like crude oil will get a bearish push from the USD Index any day now – it seems that staying on the sidelines is currently justified from the risk to reward point of view.
In short, the above remains up-to-date. The rally in crude oil didn’t take it to even the lower of the above-mentioned resistance levels, so it seems that the price of black gold could move higher in the short term, before topping.
Why would it be likely to top and slide? For instance, because the USD Index has been moving in the opposite direction to crude oil, and the former is currently already extremely oversold. Whether or not the USDX has already bottomed is not clear. It seems that waiting for a bearish confirmation from crude oil and – ideally – a bullish confirmation from the USD Index is currently a good idea from the risk to reward point of view. The confirmation in crude oil could come in the form of a daily reversal (perhaps a “shooting star” candlestick) during which it would touch one of its above-mentioned resistance levels.
All in all, the combination of factors that I discussed previously has just emerged.
Consequently, I think that opening a short position in crude oil is now justified from the risk to reward point of view.
To summarize, it seems that crude oil might have just topped or that it’s very close to an important top, and thus I think that a short position in it is currently justified from the risk to reward point of view.
As always, we’ll keep you, our subscribers well informed.
Trading position (short-term; our opinion; levels for crude oil’s continuous futures contract): Full short position in crude oil with $28.12 as the initial target price, and $50.42 as the stop loss level is justified from the risk to reward point of view.
Thank you.
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
