Trading position (short-term; our opinion; levels for crude oil’s continuous futures contract): No positions in crude oil are justified from the risk to reward point.

Oil prices rose on Wednesday (Dec. 16) on a weakening dollar, US stimulus hopes and vaccine optimism. This continuing pattern of a daily back and forth in the price of the black gold means that the outlook and our analysis remain unchanged from Friday (Dec. 11). Please note that the chart and trading positions remain unchanged as well. At this time, we think that maintaining a neutral stance and waiting for a better risk to reward ratio before re-opening a speculative trading position continues to be a good idea.

Oil has already verified the breakout above its mid-2020 highs. This breakout opened a way to higher crude oil prices in the short term – so, it’s not a revelation to see them.

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.

To summarize, for the upcoming weeks, the outlook for crude oil remains bearish, but given crude oil’s short-term breakout above the previous highs and the 61.8% Fibonacci retracement level based on the 2020 decline, it’s not bearish enough for us to keep featuring a short position in crude oil. We’re expecting to re-open this position when the risk associated with holding it becomes smaller. And when it’s more clear that the USD Index has already bottomed.

As always, we’ll keep you, our subscribers well informed.

Trading position (short-term; our opinion; levels for crude oil’s continuous futures contract): No positions in crude oil are justified from the risk to reward point of view

Thank you.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief