simonsays452

Oil touches 42.75

Short
simonsays452 Updated   
FX:USOIL   CFDs on Crude Oil (WTI)
0
Beginning with the late night strengthening of JPY and exacerbated by weak US durable goods numbers and a 2% decline in the Baltic Dry Freight index, crude has continued its march lower - hitting my target of 42.75 just before 9:30am. The move was much swifter than I expected. Technically, below 42.72 we should see a move lower to the 1.272 fib ext at 41.81. Momentum is firmly to the downside and we usually see volatility spikes precede trend pivots/accelerations.
We also haven't seen an excess of "crude crisis" chatter in the media. Anecdotally, this suggests there's further room to the downside. I'm going to stay short throughout the day and watch for reversal spikes in either Oil itself or EUR. API data is out at 4:30pm. I'll likely take some risk off the table ahead of the print.
Comment:
After crude’s swift descent and subsequent breach of my 42.75 target during Tuesday’s 10am hour - 9am, 10am and 2pm are truly magical hours for oil traders, I commented that I would watch for signs of a reversal and likely stay short up until the API print.

Around 10:30am, we saw a spike lower in crude followed by a powerful reversal. I opted not to trade. Yesterday’s close below 44.00 and my neutral zone (44.16-43.76) cemented my call for a new leg lower and it was too early in this new leg to start scalping. Moreover, the bounce off of the ~42.60 lows was violent and given the 43 strike, so too was the evaporation of the position’s gains. For the rest of the day we saw oil retrace lower along with /ES. The NYMEX ramp moved oil higher but still below the morning spike’s high. While crude also moved higher on the API build (+4.1mm vs. DOE expected: +3.560), it stalled below the 50% retracement from late August’s run higher, and below the bearish trendline from October’s highs. Moreover, December /CL futures volume following the API release was only 3,626 contracts, lower than the prior two reports (4,488 and 7,767) and not significant enough, on it’s own to glean strong sentiment.

BABA’s stronger than expected sales data coupled with APPL’s steady Chinese figures dispel fears of an imminent Chinese hard landing. This positive sentiment might filter through to commodity prices, so use the bearish trendline from October highs and the 50% retracement of August’s run higher at ~43.50 as a support level. Tuesday morning’s price action revealed strong resistance at ~42.70. I expect oil to move through this level and continue it’s downward move targeting 42.15.

As an FYI: the last two FOMC statements have been more dovish than expected and we’ve seen oil move lower due to growth concerns. I expect the Fed's statement to be a bit more hawkish than market participants seem to expect, in an effort to keep hopes for a December hike still alive. Watch what the Fed emphasizes as justification for the potential for hikes. Positive mentions of China could give crude a bid, while a truly dovish statement could pave the way lower for oil.

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