Based on today’s intra-day action and the fact that the trading week is about to be over and that (based on what is happening today) we are likely to see a weekly bullish reversal candlestick, it seems that having an open short position in the crude oil market is no longer justified from the risk to reward perspective. The potential size of the decline didn’t change - we continue to think that crude oil will move to $25 or so before the next big (!) rally takes place, but based on what happened today, the risk associated with keeping the position intact is too big.

The reasons are:

• the weekly reversal candlestick that we will probably see (unless crude oil plunges within the next 2 hours),
• the breakout above the declining short-term resistance line
• the similarity to previous cases when crude oil had been declining significantly and for some time and then a big daily rally was seen.

The above does not (!) make the picture bullish - it makes it too little bearish to justify opening a position. Consequently, since we would have not opened a position (neither short, nor long) if we didn’t have one at this time, we think the current one should be closed.

On an intra-day basis, we’re likely to see lower prices on Monday, but that’s only something that day-traders might want to take advantage of - we are not writing about it as a general trade idea.

It might be tempting to wait out the current position (actually, that would have been “the easy way out” for us as it would imply no losing trade) but we think the odds are that we will be able to get back on the short side of the crude oil market at even higher prices, which will make profits from the short trade bigger than they would be if we had kept the position intact. Our focus is not and will never be on what’s “easy” - only on what’s likely to be profitable over the long run, because we care way more about your profits and portfolios than about “never being wrong” or “never taking a loss”.

Please note that this small trade is just a small correction in profits that we have been generating to you in the past weeks and months. In fact, if you examine the second trade that is described on the above page, you’ll see that we’ve done a similar thing (exiting a trade at a small loss in order to increase the overall profitability) in the past and it was well worth it.

We will keep monitoring the market and will report to you once the risk to reward ratio once again favors opening a position in crude oil. This will probably take place at higher prices and it will probably once again be a short position, but this may change as the situation develops. Again, we’ll keep you informed.

Thank you.

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

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