November Crude Oil finished the week slightly better after ping-ponging between a pair of Gann angles at $87.39 and $86.61. Volatility was also high, helping to form an outside move for the week.
The main trend remains down on the weekly chart and will turn up on a trade through the swing top at $101.39 or reaffirm on a trade through the last swing bottom at $76.61.
The narrowing of the range between the two previously mentioned Gann angles indicates the market is setting up for a breakout. A move through $87.39 is likely to run into immediate resistance at a 50% price level at $89.00. Closing above this level means a test of $91.92 is next.
On the downside, another failure at the uptrending Gann angle at $86.61 means further weakness and a test of the next Gann angle at $81.61.
Crude oil futures were hit hard early in the week as equity markets declined sharply and the U.S. Dollar rose in a flight to safety rally. A rebound in the stock market toward the middle of the week helped crude oil gain some traction, but lingering concerns about the possibility of a debt default by Greece spread uncertainty throughout the crude oil market creating a volatile trade.
The market stabilized toward the end of the week as optimism over pending speeches by Fed Chairman Bernanke and President Obama meant that traders were anticipating potentially bullish news, but traders quickly shifted sentiment to the bearish side when Bernanke failed to mention the need for more stimuli and Obama’s ambitious jobs plan fell flat in the minds of traders.
Adding further to the disappointment by traders was the news that Germany was putting together a strategy for supporting banks in the event Greece defaults. This news helped boost the U.S. Dollar, pressuring commodities priced in dollars like crude oil.
Crude oil option traders were drawn to activity at the $80 strike price, leading traders to surmise that this price may be a downside target this week.
Factors Affecting Crude Oil This Week:
• Greece Default. European officials will be scrambling this week to provide the aid Greece needs to avoid a default. The Euro could get hit hard if aid is not agreed upon in a timely manner. This will drive up the U.S. Dollar, leading to weakness in equity markets and crude oil.
• Supply and Demand. Last week, U.S. crude oil stockpiles fell 3.96 million barrels. A drop in imports was the biggest factor influencing the decline. This decline was largely expected. Traders will continue to monitor inventory levels for signs of a slowdown in the economy.
• Risk Sentiment. If traders continue to shed risky assets, expect pressure to remain on the crude oil market regardless of the supply and demand situation. A bearish inventory report could make things worse. Money inflows in the Dollar will likely mean a drop in crude oil prices.
• Technical factors. The trend is down on the daily and weekly charts indicating a bias to the downside. Increased volatility this week has led to a surge in option activity with the $80 October put contract being the most active. This could be a sign that traders will try to push the market through this level before the September 15 expiration.
• Weather. Hurricane season is still in full force. Several refineries remained down in the Gulf of Mexico, but not enough to cause a big disruption in supply. Mexico is also experiencing shut downs which may be the reason for the drop in imports. Traders should continue to monitor hurricane traffic this week to see if there is an impending threat.
By. FX Empire
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