Trade of the week: short crude oil

(Partial video transcript)

Last week's trading outcome

Chris Beauchamp: Hello and welcome to "Trade of the week" for Monday 27th October. First, we'll go back to the outcome of last week's "Trade the week" for Monday 20th October where we went long the DAX 40.

Now, this had a good start to the week. But, as we stand with US indices and Japanese indices and UK indices hitting record highs, the DAX is the one that's a bit left out. So it seems I picked the wrong index to trade last week. We've had one that's gone up. I think it's up on the week so far and it's certainly nowhere near the stop. But it isn't showing the same soar-away performance that we've seen from the likes of US and Japanese markets.

So, maybe five out of ten for this "Trade of the week", I think, from last week. It's still holding on. I think if you've got a global market rally, there's an expectation that the DAX will at some point join in. Maybe there's some uncertainty coming through with the European Central Bank (ECB) meeting this week. And the fact it’s not got any big tech stocks in it, it's not directly affected by US-China trade talks, perhaps?

Anyway, whatever the reason, it's found a bit of resistance around 24,400 but still well up on where we were at the start of the week. And, obviously, our stop is all the way down on the chart. So nothing to worry about at the moment. We could leave this one to run. You've got rising stochastics, which suggest momentum will give it a shove to the upside at some point.

You might be poised to see a bullish moving average convergence/divergence (MACD) crossover here, which would reinforce the bullish view and still give us perhaps room for this one to push on back towards these record highs, which, lest we forget, was only just about three weeks ago. So, nothing too spectacular from the DAX this week. And as you can see, a little bit of a weak start to early trading for the index.

This week's trading opportunity

Let's get to this week's trade for Monday 27th October. With some trepidation because we might get run over by this one, but we're going to go short US crude oil. This is an interesting one because ‘sell the rally’ has been the name of the game for weeks in crude oil, had I but done it myself. Since the end of July, every time you've had a decent pop in crude oil, it's given way to the downside.

So in the spirit of doing what the trend tells you to do, we are going to go short because you've had this bounce over the course of the last week from $56.00 to $62.00. Decent bounce in crude oil, but as you can see, it’s started to run out of steam. So the fact that we did try and get back above the 50-day moving average, we did try and get back over the $62.00 level and neither of those succeeded.

So this is our bearish view given form, if you like, because the last time we did this in early October, a short term bounce again hit the wall at $62.00 and came off. The expectation is, I shouldn't say hope because hope isn’t a trading strategy, but the expectation is that $62.00 will continue to hold as resistance.

And we have a potential renewal of the move to the downside. This downward trend as you can see on the chart, the moving averages pointing lower, the lower highs and lower lows coming through, that we have a reversal on our hands and that we should get, maybe, confirmed by stochastics in due course. But you've got a second down day here in early trading. So at least our bearish view is, sort of, maintained in place. 

This week's trade in summary

So for this week, we're looking to go short US crude oil with a target perhaps down as far as these lows from last week, down at $56.00, and a stop, we'll put it at $62.50 a barrel on US crude oil.