The good news just keeps rolling in for oil traders

Oil_chart_todayFor oil traders and speculators the summer months continue to deliver stellar trading opportunities, and whilst equity investors are wringing their hands, the WTI contract shows no signs of wanting to reverse just yet. Indeed as a trader whose primary approach is based on volume price analysis, what is abundantly clear from the daily chart for oil, is that we have yet to see any sign of a buying climax which will ultimately be the precursor to a pause and reversal in due course. In my last post on oil entitled ‘how low can they go‘ I suggested we would see a test of the $40.85 per barrel level, and that if this region were breached, then we could expect to see oil prices move towards the low of $36.47 per barrel, last seen in 2003. Yesterday’s price action finally drove the market through the first of these levels and closing at $38.24 per barrel with a wide spread down candle, with the price action confirmed by high volume and the psychological $40 per barrel price point failing to offer any support whatsoever.

Furthermore, we are now testing another low volume node on the VPOC indicator in the $38 per barrel region, and given the transactional volumes at this level, we can expect to see a relatively quick move through here, and on down to test the $36 per barrel area in due course. In early trading on Globex oil prices have recovered slightly to trade off yesterday’s lows at $38.71 at time of writing.

From a fundamental perspective we also have to factor in oil’s traditional relationship with the US dollar which has broken down, and oil is not alone in this respect with equities too having decoupled for the time being. Elsewhere however it is the combined effects of the OPEC price war, coupled with the slowdown in China which have helped to accelerate oil’s progress lower, and whilst the alternative energy suppliers contine to remain under pressure, and likely to do so for some time to come, they have not yet been taken out of the equation. The turning point for oil will no doubt arrive when OPEC decides enough is enough and capitulates to its members, who for the time being apprear to be towing the line.

Meantime back to the question of how low can oil go, and the answer as always will come from an analysis of volume and price. For intraday oil speculators, the same methodology applies and works in all timeframes, so whether you are an oil trader or investor VPA provides all the answers clearly and clinically. We are not at the bottom just yet, which when it arrives will be followed by an extended phase of price congestion which in turn will be the precursor to any move higher. In addition we also have to see a move in the VPOC on the daily chart to highlight the congestion phase, or price agreement, and this is likely to be in the mid $30 per barrel price region.

By Anna Coulling

Charts from Quantum Trading on NinjaTrader

About Anna 1023 Articles
Hi – my name is Anna Coulling and I am a full time currency, commodities and equities trader. I have been involved in both trading and investing for over fifteen years and have traded many different financial instruments, from options and futures to stocks and commodities. I write and publish articles ( mostly for free ) for UK and international publications on a wide variety of financial issues, and in particular I enjoy helping others learn how to invest and trade.

4 Comments on The good news just keeps rolling in for oil traders

  1. Hi Anna,

    Hope you are well !!

    I wonder if your view of oil has changed since the article above was written? We did bounce up to 45.80 in futures on Friday…
    Thank you!

    Randall

    • Hi Jon – many thanks for you question and thanks for taking time to write to me, and I’mm feeling much better now and well on the road to recovery after my shoulder operation:-) With regard to the recent moves in the oil market, this has been the most dramatic and volatile move seen in oil in the last twenty five years and has come even as the Saudi’s have lowered the price! Whilst the strong move higher was dramatic, it was not wholly surprising given the extended bearish phase we have seen as OPEC continue to drive prices lower in an overt price war. Rig count is now increasingly playing a part and from a technical perspective over the last 2-3 days we have seen weakness enter the market once again with Thursday’s price action failing to breach the $48.20 per barrel region. The weekly chart also looks fragile with this evening’s close somewhere in the $46 per barrel region and on ultra high volume, so more downside to come in my opinion after this short squeeze higher. I will be writing some more detailed analysis on oil early next week, which will be more detailed. I hope this helps and thanks once again – all best wishes – Anna

  2. Hey Anna

    Hope you’re well.

    Apologies in advance for this question. I have a feeling I’m not the sharpest pencil.

    Hey, I have your VPA book and write regarding the price and volume action on oil on June 6 & 9. Big spread down candle then stopping volume and what looked like the beginning of a buying climax. In hindsight, would you not have been justified going long here, given the lower wicks on good vol, particularly on the 14th?

    Thanks again for your time

    Tony

    • Hi Tony, many thanks for taking the time to write and thanks also for your question on the oil chart and this does indeed raise one of the principle questions in trading, and that’s timing and timescale. Even though the oil market has been in a long term downtrend with a recent bounce higher, throughout any phase of price action on a intraday basis, there would have been trading opportunities to the long side. Not many perhaps and certainly with an eye that you were taking a position against the longer term dominant trend and therefore higher risk – but some nonetheless. However, if you were viewing the chart as a longer term trend trader, then the price action over this period would not have been sufficient to confirm or signal any longer term change in trend, with the daily response higher on good volume looking weak. The candle of the 14th was a relatively weak response particularly the spread of the candle when considered against the volume, and when the volume is compared to previous volume bars then we might have expected to see a wider spread on the candle itself. This weakness was also read against the weakness prior to this candle with wicks to the upper bodies and again relatively narrow body candles with high volume as the market struggled to rise at this point. But, as I outlined earlier, it is all a question of your timeframe. For the trend trader, this would simply have been seen as a minor pause point and not a major reversal. For an intraday scalper, there would certainly have been trading opportunities to the long side – I hope this helps and many thanks again – all best wishes – Anna

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