Trading position (short-term; our opinion; levels for crude oil's continuous futures contract): Full (100% of the regular position size) speculative short positions in crude oil are justified from the risk to reward point of view stop loss $45.63 at and $30.22 as the initial target price.
As was the case in the last several trading days, today is again one of the days when we have practically nothing new to report. Crude oil moved lower recently, and while this move was not particularly big, you might be wondering if its aftermath changed anything with regard to crude oil's outlook.
In short, it didn't. It confirmed the bearish outlook, especially that the decline took place after crude oil failed to rally above its 61.8% Fibonacci retracement (based on the 2020 decline) and its early-2020 low, despite positive news from the general stock market, and a almost relentless declines in the USD Index.
Consequently, nothing really changed, and our previous comments remain up-to-date:
Crude oil continues to trade in practically the same price range, and the forces that make it likely to decline haven't changed since. This means that we have practically nothing new to report in today's analysis - points made on Friday and yesterday, remain valid also today.
We realize that the situation in crude oil is boring and might be discouraging, but please note that it doesn't mean that nothing interesting will happen in the future. Conversely, the periods of very low volatility tend to precede periods with high volatility.
While the USD Index invalidated its breakdown (which is likely bearish for crude oil as USDs strength accompanied oil's huge slide earlier this year), the general stock market moved higher. The latter is a bullish factor for crude oil in the short run, so it's no wonder that we saw some strength in oil recently. Still, it's important to note that while the S&P 500 moved to new highs, crude oil didn't. It just moved slightly above the August high - not even close to the previous 2020 high.
So, it seems that crude oil will decline, but it might postpone the biggest part of the move until the stock market invalidates its breakout and heads south. Based on the recent decline in stocks, it seems that this invalidation might be at hand.
Moreover, let's keep in mind that crude oil still remains below the horizontal resistance level provided by the previous lows.
Summing up, the short-term outlook for crude oil is bearish based on both the technical indications and on the indications from the USD Index. Once we see weakness in stocks, crude oil is likely to get another significant bearish push - and I don't think we'll have to wait for long.
As always, we'll keep you - our subscribers - informed.
Trading position (short-term; our opinion; levels for crude oil's continuous futures contract): Full (100% of the regular position size) speculative short positions in crude oil are justified from the risk to reward point of view stop loss $45.63 at and $30.22 as the initial target price.
In case of the futures contracts that are more distant than the current contract, we think that adding the premium (difference between the July and other contracts) to both: stop-loss and initial target prices is justified.
Thank you.
Nadia Simmons
Day Trading and Oil Trading Strategist
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
