Now You'll Have to Be Extra Gritty

After a multi-day short squeeze rally in crude oil, which was inevitable in terms of "when, not if" (although timing it is always extremely difficult), we are seeing some sharp giveback today as latecomer longs feel the heat for what seemed to be an easy money trade. In reality, though, bottom-fishing broken charts (meaning price below declining long-term moving averages) is always riskier than it seems, even when you think you have the perfect bottoming setup. I day-traded a long DWTI (triple-short crude oil ETF) position late in the day yesterday for a win, but elected not to swing it overnight due to the inventory report this morning. With that out of the way, the issue now becomes whether crude is still bottoming, or instead is ripe to fully roll back over. Simply put, no one has the absolute answer to that question. I am still sticking to my thesis that crude "goes dead" from here, frustrating many with a sloppy sideways range. In lieu of pure conjecture, though, what we do know is that the crude ETF, USO, seen on the daily chart, below, responded to overbought conditions with some heavy selling. Specifically, that upper daily chart Bollinger Band (yellow arrows), indicative of overbought conditions, turned crude back down. Unless bulls immediately regroup to make a higher low, this action is still consistent with an ongoing bear trend (where shorting overbought conditions is very profitable), instead of a major bottom. One thing is for sure: Longs and shorts alike will have to tighten up stops and timeframes in the coming weeks if that sloppy sideways range comes to fruition and does not make life so easy--You'll have to be extra gritty.