The oil price declined after data published yesterday revealed a significant buildup in US stockpiles. The news comes ahead of Thursday's OPEC+ meeting when investors expect the group to reiterate its monthly output increase.
In addition, the Biden Administration has been pressuring the cartel to increase production due to its concerns about rising inflation.
WTI declined on Wednesday for the second day, for the first time since Sept. 20.
The technical picture for crude has also been weakening.
Although oil prices have been moving largely sideways in the last three weeks, a more careful examination reveals a bearish pattern.
Trading has been developing a small H&S top as the RSI tops out, showing weakening momentum. Also, the MACD's short MA fell below its long MA, demonstrating that not just momentum but also pricing has been losing integrity.
A drop below the psychological $80 mark would complete the pattern, signifying a reversal.
Trading Strategies - Short Position Setup
Conservative traders should hold on until the price closes below $78 and does not return above the neckline for at least three sessions, preferably to include a weekend. Then, they could wait for a return-move to retest the resistance.
Moderate traders would wait for the price to close below $79 and remain below the $80 level for at least two days. Then, they would wait for a corrective rally for a better entry, if not confirmation of ongoing supply.
Aggressive traders could short upon a close below $80. Money management will determine overall trading success. Here's an example:
Trade Sample
- Entry: $80
- Stop-Loss: $81
- Risk: $1
- Target: $77
- Reward: $3
- Risk:Reward Ratio: 1:3
Note: This sample is used to show the essential points of a coherent trade plan. You need to develop a strategy that meshes with your budget, timing and temperament. Until you do so, you may use our samples for educational purposes, not profit. Otherwise, you'll end up with neither. Guaranteed. No money back.