Trading position (short-term; our opinion): Full (100% of the regular position size) short position with $26.22 as the profit-take level and $34.11 as the stop-loss level.
Oil's opening gains didn't stick, and black gold moved to new 2020 lows before the day was over. How likely is it that today's bullish gap at the open sees follow-through buying?
Let's take a closer look at the charts below (charts courtesy of www.stockcharts.com and www.stooq.com ).
The first thing that catches the eye on the daily chart, is yesterday's breakdown below the lower border of the blue consolidation.
Earlier today, crude oil futures opened the day with a small green bullish gap, which triggered further improvement in the following hours. Despite this improvement, the bulls only pushed the price to the previously broken lower border of the formation. As the prices then reversed and pulled back, it looks like a verification of yesterday's breakdown.
If this is the case, we'll likely see a realization of the bearish scenario we discussed in yesterday's yesterday's Alert:
(...) 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.
Summing up, we are opening speculative short position in crude oil as it seems that it's likely to move lower in the short run. This is a relatively small position though, because if the stock market rallies in the following days, crude oil might move up as well.
Trading position (short-term; our opinion): Full (100% of the regular position size) short position with $26.22 as the profit-take level and $34.11 as the stop-loss level.
Thank you.
Nadia Simmons
Day Trading and Oil Trading Strategist
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
