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
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.
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 :