The weekly EIA crude oil inventory report is released on Wednesday mornings, and it often provides good trade opportunities. We got a good setup and trade today, and today’s action may have longer term implications.
I’ve previously written about trading in the energy futures around the EIA (government) inventory reports for crude oil (read it HERE) and natural gas (read HERE). These reports often set the market’s tone for the week, which can mean big moves in a short amount of time.
In this morning’s Futures Watch List for Swing Trader’s Insight I suggested we should look for a potential breakout trade after the 9:30 AM EIA report:
August Crude Oil: Watch the 50.00 as a pivot point today and look for a breakout trade after the 9:30 AM inventory report. Use the overnight high (50.54) and low (49.86) as reference prices.
The overnight and early morning structure was range bound, centered roughly on the $50.00 level. In my Tuesday comment I noted that the 1H16 rally appeared to be stalling against the $50.00 level; today’s post-report move had the potential to determine whether the market would establish above or below $50.
I suggested we use the overnight high and low for breakout trade entry levels. This would be where the market would break out of its balance, potentially starting a trending move. I enter these trades using stop orders a few ticks above the reference high and a few ticks below the reverence low.
The EIA report showed a smaller than forecast drop in crude oil stocks last week, and crude oil futures sold off as soon as the report was released, which triggered out short sale. We place the initial stop loss back above $50 so we would take the loss if momentum reversed back up.
August crude oil fell to a session low of 49.02 by 10:45 AM. The $49.00 level was a natural support point; the initial hold of this support could have been a sound reason to take a profit. On the other hand, the late morning double top at 49.25 led to a drop through 49.00 to make a session low of $48.40. $48.47 is a significant Fibonacci retracement support level, and it held in the early afternoon.
Today’s action may have longer term implications. As I said on Tuesday, the $50 level is a natural pivot point for trend. If the market continues to stall up here, we could start to look for a bigger, longer term selloff.
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