This week we have seen further decines in the crude oil markets, breaking to a low around $65.75 in the CLZ8 futures contract.
The chart below shows the market profile for each day, going back a couple of weeks. It was evident that from the 18th October to the 22nd we were in a sideways range. Tuesday saw heavily declines, closing almost at the lows of the day. Then from Wednesday we have traded sideways in a lower range. Friday (where the yellow arrow is), we closed a little stronger, with a small break above previous highs.
Looking at a simple bar chart, it can be seen that the lows of around $66 is where the current support is, if we break beow there, then there is a potential for further downside. Alternatively, as Friday was a stronger close, bulls good try some long trades here with stops below $66 and target the $70 area.
Historically we have broken the upward trend (blue dashed line) dating back to summer 2017. How the market reacts around these levels will give an indication as to whether there will be a strong break to the downside. It could be that we range trade sideways for a while, in a type of channel indicated by the yellow dashed lines.
Looking at a Volume Weighted Average Price (VWAP) chart for the past year, it is evident that we are holding just above the pink VWAP line. This VWAP chart is different to ones shown in previous analysis, as it is for the new December contract of crude oil CLZ8.
If we follow the same pattern that’s been evident throughout the year, the market tends to use the pink VWAP as support, and rotates back up to the top standard deviation bands. The chart below shows the area of support on the pink VWAP, at around $66. So there is a reasonable trade here to go long, using the $66 area as support, with stops below. Initial target could be $70.
Overall the long trade with stops below $66 is slightly favoured next week in the CLZ8 crude oil contract, given recent and historical price action.
If a short trade is your preference, I would look to see if the market breaks below $66 and holds there, first.