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 yesterday's analysis, we wrote that it was too early to say that the outlook for crude oil really changed, despite its most recent upswing. What happened next?
In short - crude oil reversed and at the moment of writing these words, it's lower than it was when we posted yesterday's analysis.
The above means that black gold has already invalidated the small breakout above the June high. This, in turn, means that the bullish implications of the breakout were already more than nullified. Invalidation of a breakout doesn't just erase the bullish implications - it's a sell signal on its own.
Now, crude oil hasn't closed the session yet - in fact, the trading has yet to kick into high gear in the U.S. - but the move below the intraday June high is already bearish.
Our stop-loss level is slightly above $45, which means that it's above the early-March. If this level - and the 61.8% Fibonacci retracement based on the entire 2020 decline - is broken in a meaningful manner, the SL order would take you out of the market - and correctly so, as it would imply that the outlook is no longer nearly as bearish as it is right now. This hasn't happened yet. In fact, based on the most recent invalidation, the bearish outlook just got a fresh bearish confirmation.
Consequently, in our opinion, keeping the short position intact remains justified from the risk to reward point of view.
Summing up, the short-term outlook for crude oil is bearish based on both the technical indications (in particular, because of crude oil's short-term breakdown and its verification) and on the rapidly increasing Covid-19 cases in the U.S., and we see signs that the bigger decline is likely to finally start.
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
