Trading position (short-term; our opinion): short position with a stop-loss order at $58.87 and the exit target at $53.05 is justified from the risk/reward perspective.

Yesterday's steep oil decline has given way first to a partial retracement still yesterday, and then to more upside earlier today. Can the bulls think about breaking above a key resistance ahead? And what do the technical indicators say to such a move? Let's explore.

Let's take a closer look at the charts below (chart courtesy of www.stooq.com ).

Yesterday, we wrote these words yesterday:

(...) On Friday, the futures closed the bullish green gap that has been created earlier in the week. And today, the bears opened with the red gap. The bulls attempted to counter this bearish development, yet ran out of steam and the price headed lower.

In the process, the earlier breakout above the upper border of the declining red trend channel has been invalidated. This is certainly a bearish development.

The bears went on to test the green gap created at the end of August. If it is broken, the way to recent lows would be open.

Crude oil futures have indeed reached our downside target yesterday. The bears attempted to break below the green gap but its proximity has encouraged the bulls to act, and a sharp rebound followed.

Black gold closed yesterday above the green gap, and the bulls followed through with more buying today. It's quite possible they'll attempt to close the red gap just above - they can even target a retest of previous peaks. As the commodity is trading at around $56 currently, they're not without chances.

Let's take a look at the daily indicators. Their sell signals still continue to support the sellers, and another move to the downside.

Summing up, oil has reached our downside target yesterday but the bulls stepped in and prevented further decline. Despite their powerful response earlier today, the daily indicators continue supporting a downside move. The volume comparison of today's upswing to yesterday's downswing will be insightful. The short position remains justified.

Trading position (short-term; our opinion): profitable short position with a stop-loss order at $58.87 and the exit target at $53.05 is justified from the risk/reward perspective.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist