Daily Client Note
Crude Oil (NYSE:WTI) Review
Quiet oil markets battle support
News wires are very quiet regarding crude oil valuations, ahead of a busy week of US economic releases, which by default may impact West Texas Intermediate (WTI) (96.80) valuations.
Today is not the day to be looking for currency trades.
Crude oil markets are oversold in the near-term, and have a neutral momentum read in the mid-term. The 4-hour trends are flattening out, which sets up a sell-the-test-of-resistance play from the next upside test of 101.50 on WTI trade.
The potential for new trade signals to form today is weak, after the recent explosive long and short moves that hit for 30-minute periods in the previous few sessions. The reversal through resistance at 100.00 on WTI was highlighted on Friday, and has followed through to hit 96.00 support. The 100-day Simple Moving Average area at 99.50 now offers major upside resistance.
Oil Price Action:
Strong buying activity was seen at 97.00 on WTI in April and May. This price reversal and swing point area has not yet confirmed that it is a price point to buy the dips from. Market alerts will be sent to subscribers as sustainable momentum builds.
Main WTI support: 95.50. Main WTI resistance: 100.50.
Exchange Traded Fund:
The outlook for USO (38.30), the exchange traded fund (ETF) that tracks oil momentum, is for consolidation above 37.50, and to struggle to easily break 41.00 resistance. The ETF is likely to continue to lag behind the main moves seen in WTI futures contract trade, as major oil price action is taking place while the US session is closed.
Any existing open USO positions should be closely monitored while recent price action is absorbed. USO may struggle to offer a fair reflection of the choppy 24-hour moves currently being seen in crude oil futures trade, and a weekly chart close may offer some clarity.
ETF Price Action:
Strong buying activity was seen at 42.00 on USO in April and May. This potential price reversal swing point area has once again been shown as a massive area of resistance that is hard to break, and will continue to be closely monitored. Upside moves are muted, and gaps in closing/opening prices are very likely in the near-term.
Main USO support: 36.50. Main USO resistance: 42.50.
WTI 100-day Simple Moving Average (NYSE:SMA) is at 99.90. 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 $3.80, which is way above the historical norm and indicates increasing speculative interest, and increased volatility to come.
No trade signals have formed in the near-term. Recent movement came too quickly to create trade potential confirmation. Clients will be notified when price action confirms 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.
Alternate 24-Hour Trade:
Investors who do not want to wait for their regional cash market to open, or do not have 24-hour access to the market they have open positions in, are able to access the 24-hour currency market. There is potential to analyze and trade currencies in a high-volume market that is supported by the global inter-bank system.
Investors can trade currencies in-line with a rising global market, or trade ahead of a falling cash market open. Being able to use currencies offers the opportunity to be in a trade before the regional market opens.
Traders could trade the currency pair EUR/USD in-line with the potential seen in global crude oil movement. Buying or selling the US dollar against the euro is a simple process of placing a sell order on EUR/USD, and then closing that same position in a similar way that equity trades would be managed. However, a stronger trade signal in WTI would need to be seen before looking for correlated forex trades.
TheLFB trade desk generates trade signals that highlight specific price points to trade from, and market alerts that highlight sentiment changes in global markets. TheLFB provides 24 hour market support for traders, investors, and institutions. Service offerings include analysis of three asset class areas:
- Foreign Exchange (Dollar Index, EUR, GBP, AUD, CHF, CAD, JPY)
- Equity indices and ETFs (SPY, DIA, GLD, SLV, USO)
- Commodities (Gold, Oil, and Silver)
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Daily Client Note