Trading position (short-term; our opinion): No position in crude oil is justified from the risk/reward perspective.

Wow, what an upswing in oil... It surely must have changed quite a few things regarding black gold's outlook. Let's see how much has the picture clarified then.

Let's start with the daily chart examination (charts courtesy of http://stockcharts.com and http://stooq.com ).

Yesterday, crude oil moved sharply higher and climbed above $53, which resulted in a breakout above the 38.2% Fibonacci retracement based on the entire January 21-February 4 downward move.

Thanks to this increase, the commodity both closed the red gap created on January 30, and tested the upper red gap created on January 27.

How did this price action affect crude oil futures before today's market open?

As we can see, crude oil futures opened today with another bullish gap and then went on to extend gains a bit. The bulls approached the upper border of the red gap created at the end of the previous month.

Despite this improvement the buyers stumbled and didn't manage to hold gained levels. A small pullback followed, and the futures slipped to the lower border of the gap created at the beginning of the day that is based on yesterday's close at $53.49. At the moment of writing these words, the bulls are making another run higher though.

What's next?

In our opinion, much depends on whether the buyers manage to keep the advantage achieved at the start of Thursday. In other words, whether the gap would remain open when the day is over. If so, we'll likely see another test of the strength of the nearest red gap or even the 50% Fibonacci retracement (at around $54.57) in the very near future . That could even come later today.

However, should the bulls prove weak and don't keep the upside momentum with the bears closing the gap created earlier today, it appears likely that we could see a bigger pullback and a test of the supportive gaps created at the starts of previous sessions, or even the previously broken upper border of the blue consolidation.

And speaking about that... It's worth noting that today's upswing means that crude oil futures reached the level, where the size of the upward move corresponds to the height of the above-mentioned blue consolidation. This increases the probability that some of the bulls would opt to close their positions, which could translate into a reversal.

Summing up, the situation in crude oil is relatively unclear at the moment, but it's quite likely to clarify to some extent soon. When in doubt, stay out is the old Wall Street saying and it fits perfectly to the currently situation.

Trading position (short-term; our opinion): No position in crude oil is justified from the risk/reward perspective.

Thank you.

Nadia Simmons
Day Trading and Oil Trading Strategist

Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager