A Classic Crude Bear Trap

Includes: DTO, KOL, OIL, UNG, USO, XLE
by: Stephen Schork

Last week, the directional instability in the U.S. dollar index wreaked havoc on crude’s previous few weeks of steady upward momentum. Despite trading near its lowest levels since last December, the index (DXY) jumped almost 1% last Wednesday, which in turn helped the NYMEX crude contract plunge $3.88 or 5.8%. However, crude bounced back the next day as the dollar resumed its slide and Friday’s “less bad” GDP report lifted the September to finish its week in positive territory.

We thought that we were thrown a curve ball as crude seemed to have jumped back on the fundamental bandwagon that resulted in Tuesday/Wednesday’s combined $5.03 rout. A sizeable build in inventories was recorded, durable goods dropped 2.5%, and Big Oil’s quarterly earnings were in the toilet. Yet, when Thursday’s Initial Jobless Claims rose from 559k to 584k (bearish…right?), NYMEX crude oil skyrocketed $3.59.