Trading position (short-term; our opinion): At the moment of writing these words, crude oil is trading at $23.26. We currently view long positions in crude oil (100% size of the regular trading position) as justified from the risk to reward point of view with $29.78 as the binding profit-take level, and with $19.78 as the stop-loss level.
This level is based on the very strong support provided by the long-term support line based on the 2009 and 2016 lows.
What a beating oil took! Has the bottom fallen out?
Let's take a closer look at the charts below (charts courtesy of www.stooq.com).
These were our Monday's observations:
(...) In our opinion, if the bears manage to (...) close the day below the lower border of the consolidation, the way to the recent lows will be open. But taking into account the size of the consolidation, it's very likely that we'll see not only a test of the last week's low, but also a fresh 2020 low at around $25.40.
Why this price point?
It's that in this area, the size of the downward move would correspond to the height of the preceding blue consolidation.
The situation unfolded along the lines of our assumptions, and black gold not only tested the previous low, but also moved below it. This has made our already profitable short position even more profitable.
Today's drop means that our short position was automatically closed at a great profit in the following hours. The futures then slipped to the next downside target, fulfilling the Monday's bearish scenario.
What's next?
Let's zoom out and focus on the long-term chart.
As you see on the monthly chart, the recent price action took crude oil futures to the green support area created by the November 2002, April 2003 and May 2003 lows, which is the last stop before the test of the long-term green support line based on the 2009 and 2016 lows (at around $23).
Slightly below, there is also another support area created by the green bullish gap from March 2002, which could encourage the bulls to fight in the coming days. Nevertheless, should these supports turn out to be a piece of cake for the bears marching south, we can also see a decline to the psychological barrier of $20 or even a test of the lows created at the turn of 2001 and 2002 in the following week(s).
Summing up, oil declined as expected, and reached a key support. The potential for rebound is high, and therefore opening long positions is justified.
Trading position (short-term; our opinion): At the moment of writing these words, crude oil is trading at $23.26. We currently view long positions in crude oil (100% size of the regular trading position) as justified from the risk to reward point of view with $29.78 as the binding profit-take level, and with $19.78 as the stop-loss level.
This level is based on the very strong support provided by the long-term support line based on the 2009 and 2016 lows.
Thank you.
Nadia Simmons
Day Trading and Oil Trading Strategist
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
