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West Texas Intermediate Trapped

May 26, 2011 8:53 AM ET
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Headlines and Open Positions:
There is very little in the way of news headlines to directly impact crude oil valuations. Potential price action continues the choppy and overlapping trading patterns that has found support, and is unable to break resistance. Trade desk updates sent a trade signal to clients to buy from 99.65 on West Texas Intermediate (WTI) (100.80), targeting 101.00, which has completed its cycle.

The outlook for USO (39.90), the exchange traded fund (ETF) that tracks oil momentum, is to consolidate above 37.50, to struggle to easily break 41.00 resistance, and to continue to lag behind the main moves seen in WTI futures contract trade.

Expectancy is for consolidation in crude prices in the near-term. Any existing short-oil positions should be closely monitored while recent price action is absorbed. USO looks to have some catching up to do to match recent oil buying, and may struggle to offer a fair reflection of the choppy 24-hour moves currently being seen in crude oil futures trade.

Oil Price Action:
Strong buying activity was seen at 97.00 on WTI in April and May. This potential price reversal and swing point area found buyers recently, and will now be closely monitored as an area of strong support to buy the dips from. Market alerts will be sent to subscribers as sustainable momentum builds.

Main WTI support: 93.50. Main WTI resistance: 102.50.

ETF Price Action:
Strong buying activity was seen at 42.00 on USO in April and May. This potential price reversal swing point area will be closely monitored. If price action breaks 40.00 on USO the upside targets are 42.00. Upside resistance will now be very strong, and trade size should be reduced until global trade momentum builds.

Main USO support: 36.50. Main USO resistance: 40.50.

Technical Correlations:
WTI 100-day Simple Moving Average (SMA) is at 99.00. WTI has a 36-month 75% correlation to S&P moves, and a 90% correlation to the euro (Eur/Usd) currency pair.

Daily trading range on WTI is $2.70, which is above the historical norm and indicates increasing speculative interest.

There was a trade signal issued on Wednesday for WTI, looking for a break of 99.65, which has now completed its two upside targets. Clients will be notified when price action confirms further upside potential.

Sentiment towards WTI trade is mixed after recent tests of support held, but strong upside resistance was not able to be easily broken. Price action favors consolidation of recent moves in the near-term. Traders committing to oil trades at these levels need to reduce trade size, as volatile intra-day trading patterns are likely to continue for a while.

TheLFB trade desk generates trade signals that highlight specific price points to trade from, and market alerts that highlight sentiment changes. Clients receive detail on gold, silver, crude oil, equity indices, equity ETF’s, the dollar index, and eight major currencies. Full Detail

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