There’s a Sherlock Holmes story where Sherlock solves a case because a dog didn’t bark at night at a crime scene where there supposedly had been an intruder. The dog not barking (“the curious incident of the dog in the night-time”) when it should have done so was a major clue to Sherlock solving the case.
Sometimes markets give us the same kind of clue. When a market does the opposite of the expected reaction to a report or development, it can be a strong signal as to the market’s direction.
This brings me to crude oil. In yesterday morning’s (February 2) Swing Trader’s Insight watch list I wrote about looking for a bottom in crude oil; my comment was “maybe a successful test of the $30 area will lead to a turnaround”. Although it came a day later, today’s action was what I described yesterday.
“The dog didn’t bark” clue was in the weekly inventory reports. Last night’s API report showed a bigger than expected rise in crude oil inventories last week. This pushed crude lower late yesterday afternoon, with March crude ending the day at 29.71.
By this morning, however, crude had staged a recovery, trading slightly above $30 as I was writing this morning’s STI watch list. The EIA inventory report is given greater credence by the crude oil market so this morning’s report was another opportunity to gauge the market’s strength.
The EIA report amplified yesterday’s API numbers, showing an even bigger build in crude oil stocks last week. The market’s first reaction was bearish, with March crude making a morning low of 29.74.
It’s here where “the dog didn’t bark”. Rather than continue lower (the overnight low for CLH was 29.40), crude oil found a bottom and by about 9:40 it was back above the $30 level. This upside reversal led to the anticipated rally as short covering and bottom pickers started the rally and momentum buyers accelerated the move higher as it moved up in a positive feedback loop.
Where does crude oil go from here? I’m more of a shorter term trader; the longer the timeframe the more cautious I am with my analysis. For now I’d watch to see if March crude futures can clear resistance in the $32 area. Longer term we’ll see if it can continue to hold above $30; rallying above last week’s high of 34.82 could mean more upside to come.
Try Swing Trader’s Insight for 14 Days
Swing Trader’s Insight Trial - This swing trading resource is designed to help you improve your trading skills and make you aware of trends and new potential opportunities in the commodities markets. Regardless of your current skill level, access to this exclusive swing trading information will enhance your trading experience.
Swing Trader’s Insight includes an email newsletter subscription.
Swing Trader’s Insight trial lasts 14 days.
Essential Guide for Futures Swing Trading
In this guide, experienced trader and broker Scott Hoffman explains the trading methods he uses to analyze and trade the futures markets and to publish his trade advisory, Swing Trader’s Insight.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.