(Click Image To Enlarge)
November Crude Oil futures finished another “observation” week with a slight down tick from the previous week. It was another observation week because all traders did was watch and observe the fourth consecutive week of sideways price action.
Traders showed little reaction to another weak economic report out of China, hawkish talk from several Fed officials, or a potentially bearish inventories number from the EIA. There was also little movement during September with the November futures contract posting an inside move. Although this chart pattern indicates trader indecision, it also signals impending volatility. We’re just going to have to figure out the catalyst that will make this market run.
From observing four-weeks of sideways action, we can see the trigger points for potential breakouts in either direction. However, breakouts can fail if they don’t have volume behind them. In other words, for a successful upside breakout, we are going to have to see better-than-average size on the bid. This will indicate the presence of real buyers. Given the bearish fundamentals, a rally will not be sustainable if the move is generated by buy stops.
On the downside, we are going to have to see fresh shorting pressure on better-than-average volume. Sellers are going to have to be willing to sell weakness because sell stops alone will not be able to sustain a breakout to the downside.