The West Texas Intermediate Crude Oil market initially tried to rally during the session on Friday as traders were not willing to hang on to risk heading into the weekend. Ultimately, this is a market that I think given enough time will have to make a longer-term decision, but when you look at crude oil, the first thing you should think about is demand. Demand is almost certainly going to be falling off a cliff, and therefore we are more likely than not going to continue to see pressure overall.
Looking at the start, we have already formed a “death cross”, which is when the 50-Day EMA crosses below the 200-Day EMA. The market is going to continue to be very noisy, but I do think that it is only a matter of time before we reach the lows again, and if we break down below the lows, then it’s likely that the crude oil market will go looking to the $80 level.
Fundamentals Don’t Favor This Market
- Until something changes, this is a “fade the rally” type of situation, and therefore it’s likely that we will see any “risk behavior” be sold into.
- This is a market that continues to see a lot of concerns when it comes to global growth because when growth starts to fall, it’s very unlikely that you are going to see any signs of bullish pressure in energy.
- We are already starting to see natural gas start to roll over again, which is a minor miracle considering how that market has behaved.
It’s not until we break above both moving averages that I would have any belief whatsoever in a longer-term move. That would take a major shift in not only momentum but fundamentals as well. The fundamental situation is not good for most things right now, and I don’t anticipate that this market is going to be any different. That does not mean that we are going to simply fall out of bed, but I do think that we have a situation where we chop back and forth rather brutally. Because of this, I would be cautious about putting on big position sizing, but I also recognize that unless you can watch the trade, it’s going to be difficult to get involved anyway.
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