Learn to trade 8th April Commodity Overview
Focus on Oil
Over the last five days WTI Oil futures have rallied strongly breaking the 2010 highs at $83.95. The major catalyst for this move appears to have been the strong payrolls report out of the US last Friday, on that day alone the market rallied over $1.50 and for the first time closed above $83.95.
Thoughts from the trading floor
From a technical perspective we have seen a large shift to the bullish side with the break of $83.95. This signifies the first break of the consolidation zone that has dominated 2010, and places a great deal of emphasis on the next few weeks. The triple top formation that had formed over the last 6 months has now been invalidated and it now appears likely that the market will test resistance to the upside. The next large test will be at $89.90; this represents the 50% retracement of the 2008 down move. Beyond that daily resistance lies at $93.00-20 with the psychologically important $100 level the obvious target for bulls. However before any of these levels can be considered oil’s first test may be to hold above the previous 2010 high ($83.95), a failure to do so could send the market back into the previous sideways trading pattern.
Yesterday the DOE released its latest inventory number with Oil showing a slightly larger build than expected, 1976k against 1350k. As a result oil spiked lower but this move was soon rejected perhaps aided by a larger than expected drawdown in gasoline. Either way the market’s ability to shrug off these numbers so aggressively highlights the underlying bullish tone and fits with the current technical picture.
Yesterday the world’s largest oil consumer, the US, increased its crude oil price
forecast for 2010. They believe that the quicker than anticipated global
recovery will aid demand and hold prices above $80 this year. This represents a
31% rise on lasts years’ average price of $61.66, a time when the recovery was in
its early stages. Overall this indicates the importance of the continued macro
improvement for oil prices.
Bull View
Bulls will be delighted with finally breaking the consolidation zone and will now be focussed on holding the market above the previous 2010 high at $83.95. With many technicians now believing oil will reach $100 this year they must feel in the box seat.
Bear View
Bears now find themselves under great pressure and it appears that their only hope is a souring in the current economic optimism. At current the most likely source for this appears to be the continuing uncertainty surrounding Greece and other European peripherals.
Futex View
Now that oil has broken out of its sideways trading range we believe the market will look to test higher over the next few weeks, aided by strong equity performance. For this reason we believe in a buy dips strategy as long as the market holds above $83.95.
Tags: bear, bond, Bond Futures, bull, Bund, Commodity, futex, Oil
