Congratulations on profiting from crude oil’s drop - it caught many traders by surprise, but you took advantage of the move instead of being hurt by it.

In today’s regular Oil Trading Alert, we wrote the following:

“The volume that accompanied yesterday’s move higher was relatively low, which serves as a bearish confirmation and something that further validates our trade. It’s tempting to increase the size of the short position, but it seems more prudent to wait for either a reversal or a weekly closing price that might tell us more about the outlook for the upcoming week. If anything regarding this week’s candlestick becomes apparent before the end of today’s session and the implications become either significantly more or significantly less bearish, we’ll send you a follow-up message.”

We saw both: a reversal and an indication of a weekly closing price that tells us more about the outlook for the upcoming week. The reversal is not a daily phenomenon, but a weekly one. The trading week is not over yet, but with less than 3 hours before the end thereof it already seems quite likely that the current weekly candlestick will indeed be the final one.

Crude oil declined by about $2 today, which is more than it had rallied in the previous days and this in turn means that the entire week took form of a major bearish reversal. That’s in tune with what we described as likely based on May’s monthly candlestick and the following weekly candlestick. Crude oil was likely to rally early during the week, but we didn’t expect any major strength. It seems that the strength is already over and since this week is most likely going to be bearish reversal, the chance for a decline in the following week is now higher.

Therefore, it seems that a bigger size of the speculative short position is now justified from the risk to reward point of view. Consequently, we are doubling it, moving from 50% size of the regular position to 100% of the regular size of the position. The initial price target and stop-loss levels remain unchanged. We will likely move the stop-loss level lower shortly and effectively lock-in part of the profits while allowing them to grow further.

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

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager