The last week in oil trading has seen a continuation of the ‘mini-bear’ market we worried about last week, including a particularly violent $3 dollar drop in crude on Tuesday. Assessing the importance of this action for the short term is the easier of this column’s two tasks – the longer-term health of the oil market is tougher to assess from the trader signs I have been seeing.
So, let’s get started:
We recognized last week the flood of speculative longs that had begun escaping from the oil market, and noted the likelihood that that trend would continue. And continue it did – but with the added fuel of the statement from Saudi oil minister Al-Falih of the Saudis ability to ramp up and cover any shortfalls that might result from upcoming Iranian sanctions.
Despite the (almost) capitulation-like violence of the resultant move that day, volume did not seem extreme for the move, with ‘only’ 1.3m December contracts trading; significant, but below what I would consider overwhelming – consider the up volume of 21 September and the down volume of 17 October, for example.
(Click to enlarge)
Besides volume, we also note the likely crossover about to take place in the slow stochastic – indicating that this move downwards was too fast and that a likely technical rally is about to take place.
More indicators of the likelihood of at least a short term recovery in crude oil can be seen…