Rooster Call: Indecision in Crude Oil Futures

Hit the Mark Trading’s Brief Review of Overnight Market Action Setting the Tone for the Trading Day

Recap

I will start with excerpts from last night’s client note sent with market video…not much news overnight. So keep in mind these notes reflect yesterday’s action:

Crude at 4:30PM ET traded at 52.24. The entire day was a defense of 52.00. After 4:30, the bottom fell out and crude trades to 51.70. Why?

API today, gives the worst news possible saying crude inventories surged by 14.23 million barrels last week. Gasoline inventories rose 2.9 million barrels. Distillate stocks rose 1.37 million barrels. The Cushing, Oklahoma facility recorded a build of 624,000 barrels, showing the first inventory increase in five weeks. Very Bearish. I would expect overnight trading will continue pressure on crude. Wednesday we have the USA government crude report, which analysts expect a build of 2.38 million barrels (Investing.com).

Why are crude inventories building? Because every single week the rig count increases. Demand apparently static against a back drop of tremendous inventory glut. It will be interesting to see if OPEC tries “talking up” the market tomorrow.

We continue watching for ES potential market structure top as discussed yesterday. (Separately, yet related…I just read AAPL, IBM, BA, and V accounted for 80% of the Dow’s gains this year…4 stocks).

Volatility is non-existent. We have not had a 1% move in volatility in all of 2017. This means option trading is more of a challenge for selling put spreads.

This morning’s trading was extremely slow…I mean SLOW. Most of the action occurred in the overnight / pre-market session, especially Euro.

What surprised me today was the strength of the bond market. After FED President Harker  (also voting member of FOMC) issued his torpedo attack on bonds, by suggesting the FED could raise in March, I allowed my personal bias to keep me from trading bonds…which were the only consistent mover.   If the run continues, we have 152.29 area resistance.

They say bond traders are the smartest guys in the room. Money could move into bonds based on run to safe harbor over Iran sabre rattling, uncertainty due to Draghi reiterating his stand the ECB might not be finished with easing (and negative interest rates), and bonds could be rising as Europeans park money in front of the French elections.

Euro collapsed overnight as US dollar soared. LePen wants to pull out of the Euro if elected, so we hear. Euro tests 34 EMA. Our support line is 1.0637.

Today’s crude oil storage report is likely to provide fire-works if the governments’ report does not agree with API, but rather is reported close to experts forecast of 2.38 million barrels. The Energy Information Administration said that the U.S. will pump the most crude next year since 1970, as OPEC cuts lift prices and benefit domestic producers (Bloomberg).

In the event EIA reports numbers close to API, this is a fundamental reason for crude to fall. According to the Commitment of Traders report, crude longs are HUGE. Thus, if large hands start moving out of the market at the same time…well, look out below. I think $50.00 will be vigorously defended by OPEC and the oil industry.

One of the problems with crude price rising are exploration firms immediately hedging production at current prices. They are not betting for higher prices. They cannot afford this luxury of time, so they hedge, speculators buy, and exploration firms take the money to pay bills.

Can crude fall further? Why not?…$48.00 and our line in the sand $46.54.  Day traders are reminded…do not form any “absolute” opinion on the direction of crude. Just when you think crude MUST fall, crude manipulators push crude higher. This is a “big boy” game. Just follow the price action.

Gold pushing 1241.7 as financial writers tell us worry enters the market. We look at the charts and note normal seasonal tendency push the metal higher.

Grains have an important crop report 12Noon on Thursday.

Economic Events

  • MBA Mortgage Applications – 7:00 AM ET
  • EIA Petroleum Status Report – 10:30 AM ET
  • 10-Yr Note Auction – 1:00 PM ET

Markets

Equity index futures are very quiet. Long term trend has momentum, short term trend questionable with price unable to conviction in ES. It’s tough when day traders have very slow price action.

Bonds higher. Run to safety?

Crude is higher off overnight lows. Be very careful in crude today. If crude rises on a bearish report…not to worry…the large hands tend to drop it in the afternoon many times. Just follow the price action.

Natural gas red today. Nothing special. Monday’s bounce was technical as price simply touched support.

Wall Street Journal says Chilean copper mine will strike. Copper higher. Better to let this one pass in my opinion, than playing the news.

All grains rose yesterday and are showing incremental follow through today.  Corn, in my opinion has the greatest chance of a position trade this Spring.

Coffee pull back deepens. Sugar lower. Cocoa quiet.

Euro lower, yet higher off lows. Worth watching for day trading especially the last hour to hour and a half of European trading.

Yen moves are incremental. The financial press wants you to believe fear and worry moving Yen.

Pound dangerous as today is an important Brexit discussion and action day in Parliament.

US dollar incrementally lower.

To learn more from Martin, visit HitTheMarkTrading.com to join his mailing list and receive blog updates.