The WTI futures contract for oil and the April contract is delivering some interesting price action on the daily chart, and one on which VPA traders and speculators would be well advised to note.
First, we have the classic increase in volume over the last few days as selling pressure increases across the markets, so falling prices being confirmed with rising volume. Then, yesterday’s price action developed, with higher volume still, but note the development of the deep wick to the lower body. This is the first signal of stopping volume appearing, in other words, buying. But just like the oil tanker itself which continues on for miles under its own momentum when the engines are turned off, so it is the same here. The market has momentum and to absorb all the selling pressure cannot be achieved in one day, it may take several, but this is the first sign. What we need to see now, is further buying with a narrowing of the price spreads, followed by a congestion phase before the inevitable rally begins.
The weekly chart confirms this picture and note the weak rally of the last two weeks on falling volume and indecision in the form of a Doji candle last week at the volume point of control denoted with the yellow dashed line. What is also interesting about the weekly candle is the associated volume. Hardly extreme, and for such a wide spread down candle, we would expect to see more, much more perhaps thereby confirming the selling pressure is weakening. Moreover, we are unlikely to see a V-shaped rally. More likely a congestion phase and reversal as explained above.
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading
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