The week’s trading has been dominated by just one technical indicator, which provided excellent trading opportunities throughout the week.

The key theme for crude oil trading this week, has been the VWAP on the daily chart, as mentioned last weekend. As mentioned then, the market had sold off, and found support just above the (pink) VWAP line. A test of this line would determine whether there would be further downside, or not.

As mentioned in Wednesday’s pre-inventory blog, the data release from the EIA could be the catalyst for a break below that support, which held Monday and Tuesday.

The chart below shows the TPO profile, and the Volume-by-price, for each day. It can be seen the market was trending sideways, between the yellow dashed lines, at the start of this week, and the end of the week prior. This is where the VWAP support was keeping the market above $71

The yellow dashed horizontal line show the sideways trend.

On Wednesday it can be seen the market breaks below the bottom yellow dashed line. This was on the poor EIA inventory data showing a +6.59M build against an expected +1.6M, after the data was released the market broke both this support level.

The support level is also shown below as the VWAP on a daily bar chart. As discussed throughout the week, this pink VWAP line was the major support, and the market had to test it, to set the tone for the weeks ahead.

Pink VWAP line was support since 11th October 2018. It broke through on the Wednesday data release

Looking ahead to next week

As the market has broken below the VWAP, and managed to maintain that position, it is now time to consider short positions with that VWAP acting as a resistance level. By placing shorts below the VWAP, and stops above it, there is a reasonable risk/reward trade on for the coming weeks.

In terms of initial target, around $67 looks interesting, given the long term upward trend, as shown on this chart :

The daily chart above shows an upward trend line, which acts as a reasonable target for short positions

All information here is provided as education only, and should never be used to make investment decisions. Always seek professional financial advice before making any financial  decisions

About the author

Trading and Investment

Traded the markets for over 15 years, including Commodities, Bonds, Currencies, Equities, and Indices. I have also worked as a Chartered Financial Planner.
CeMAP, CeFA, DipFA, AdvDipFA, Ba(Hons) Economics, Chartered ALIBF

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