Trading position (short-term; our opinion): No positions in crude are justified from the risk to reward point of view.
After oil futures retested the $10 mark, they've rebounded. Is the worst over now?
Let's check the USO ETF charts (charts courtesy of www.stockcharts.com ).
The first things that catch the eye on the daily chart, are yesterday's orange bearish gap and the breakdown below the lower border of the blue consolidation.
As you can see, the ETF opened on Monday with another big gap, which encouraged the sellers to push prices lower in the following hours. Despite the tiny rebound before the closing bell, the USO finished the day below the lower border of the blue consolidation. This suggests that further deterioration may be just around the corner.
Should it be the case and the ETF extends losses from here, the first downside target for the bears would be around 1.1, which is where the size of the downward move will correspond to the height of the blue consolidation.
Nevertheless, if the bulls do not manage to stop their opponents in this area, we'll likely see the realization of our bearish scenario from Wednesday's Oil Trading Alert:
(...) the USO moved to the previously broken lower border of the red declining trend channel. Unfortunately for the bulls though, this could be just a verification of the earlier breakdown.
Should it be the case, another move to the downside and likely a fresh low (maybe even around 0.50-0.70), is a strong possibility.
(...) in our opinion, it is too early to say that the worst is already behind the bulls, the USO ETF and the oil market. The rush to open any positions can easily prove premature.
Summing up, the bottom in the USO ETF might not be in just yet, and the situation in crude oil futures remains too chaotic to open a trading position with any degree of confidence in a profitable outcome.
Trading position (short-term; our opinion): No positions in crude are justified from the risk to reward point of view.
Thank you.
Nadia Simmons
Day Trading and Oil Trading Strategist
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
