Crude Oil finally (and fully) achieved its downside round-number target of $30.00 per barrel this morning.
What’s the play here? Let’s update our chart, learn a quick lesson, and plan the future.
The first thing we do when we look at a price chart is assess the trend (Up, Down, Sideways).
When a trend is in motion, odds favor continuation of the trend, NOT reversal (so many traders get this wrong).
Crude Oil (NYSEARCA:USO) reminds us all of this lesson as the commodity has been downtrending since the $100 level breakdown in late 2014 – the downtrend has been relentless (and shows no official signs of stopping with today’s new low).
This is the first thing we cover in our “Getting Started with Technical Analysis and Trading” Lesson Bundle.
When a trend continues, we look to play retracements or flags that develop in the direction of the trend.
However, trends move in “Action and Reaction” Cycles or movements and when price is extended far away from a falling moving average (like the 20 day), the next move is usually a swing or retracement back toward this average.
Any buy set-up or position would be against the prevailing trend and would be for a short-term trading purpose only (and only should be attempted by aggressive traders).
Like the S&P 500 testing the 1,900 “Round Number” target, a short-term bounce may develop also for Crude Oil near its $30.00 per barrel Round Number Pivot.
For planning purposes, aggressive traders can paly long/bullishly on a departure (movement) swing away from this level; however, any further breakdown under $30.00 opens the market for additional downside action as the ongoing (slow-moving) collapse continues.
Reference July to August 2015 for the most recent collapse of Crude Oil under the $60.00 level.