Wednesday, April 20, 2016

Crude Oil Market Recap

I could not find any valuable trade since several days. There are sometimes such times in which I analyze the market and don't get the story, lol. It's a good idea to take a nice break from trading in these times or the market would try to heartbreak the trader if you know what I mean. I've learned my lessons in the lovely past. Anyway, today was a great day in Crude Oil. We had a knee-jerk move to the north and I took the opportunity to participate in this trip to the Mount Everest, so I thought to write a post about it.

Firstly and foremost, it's the settlement day for the May contract (expires today). At Monday the volume has rolled over to the June contract already. That said, since Monday I looking at the June contract.

Next thing is the COT report as I like to see what the managing money sector done in the previous week and maybe the numbers are of some help for you as well. ICE Europe and NYMEX as well as Options and Futures combined, Money Managers were net buying 27,635 contracts of WTI Crude oil in which short covering has dominated the flow with 24,173 contracts, in the week endend April 12.

Let's move our eyes to the weekly US Dollar Index chart. We are still testing the mentioned macro balance area low which seem to support Crude oil in some degree. The previous week was a ouside bar (previous week's high and low got taken out) which could indicate change in the market context due to the macro braket low, I guess.

For the sake of diversification let's employ a bottom up analysis process today. With that said and looking at the daily profiles (ETH/Globex), we can identify Tuesday's double distribution volume profile with an unsecured low. This profile type is quite tricky to trade sometimes but the brave secret here is to split the profile. I will elaborate what I mean with this in the next paragraph, patience please. With looking at the current profile, we opened (ETH/Globex) in the upper distribution but below the VPOC (Volume Point of Control). The market did not test that VPOC in the overnight session and quickly tested the ETH value area close level to find some balance there but continued its exploration in the lower distribution. Notice that we never broke the distribution low in this lower area. In the end and with help of the Crude oil inventoires the market gone vertical.

How to trade this thing with a split now? Simple, look at the following screenshot:

As you can see with the split you have two profiles to conclude your scenarios and more levels to trade from. As the market opened with a open drive (open level in such cases highly potential area to revisit) in the combination with the untouched naked VPOC it made the most sense for me to take a trade from that lower VVAL level in the U.S session with a stop location below the distribution low. Sure, to hold a trade during the inventories is not the best idea but let's avoid to be pussy-whipped. Anyway, in this case the golden luck was on my side although my target was that mentioned naked VPOC level, so I missed more than 50% of this upside move.

Moving forward to the weekly profiles in order to identify some confluent levels, we can observe support from the previous week's VVAL close level and it seems the low volume area were enough filled with volume in this week. Also, to mention is the VPOC in the lower distribution.

Last but not least, the monthly profile. With looking at this, you can quickly identify the previous month's TPO acceptance area and its supportive lower level:

In summary the marekt offered some nice levels that were confluent with our intra-day trading location.

With all that said, I hope you had a great day! Stay happy.