December Crude Oil continued its downslide on Tuesday due to demand concerns and growing inventories in the U.S. Since breaking Fibonacci support at 76.45 on August 19, crude oil has dropped over $3.00 per barrel to the July 6 bottom at 73.15. If downside momentum continues, the market should test the May 25 bottom at 71.50 shortly.
The slowdown in the U.S. economy has forced many analysts to cut their demand outlook over the short-term. China is also cutting back a little. With the world’s two largest economys demanding less crude oil, the market really has no place to go but down.
With the end of driving season right around the corner, U.S. inventories are expected to continue to increase.
Technically, the trend is down, but the market is nearing two key bottoms at 73.15 and 71.50. With the market down 14 days since the top at 84.45, trader should be careful not to aggressively short this market in the hole due to the threat of a possible short-covering rally. Oversold conditions make this market ripe for a closing price reversal bottom especially if Wednesday’s Energy Dept. inventories report comes out better than expected.
Traders should also watch the weather for possible disruptions in the oil supply. The threat of a hurricane may lead to a refinery shutdown. This type of news has been known to cause a short-covering spike in oil prices.
Stock Index futures are relatively quiet overnight and the outlook is for a slightly lower opening, nonetheless, last night’s close has the indices on a seven-week low and in a position to work lower.
Lower yields in debt markets continue to tell investors to buy Treasurys. The Fed told us a couple of weeks ago to buy Treasury Bonds. Japan and large institutions have been buying Treasury Bonds. All of these transactions are telling us to be conservative.
Overnight traders are taking a cautious approach ahead of the Durable Goods and New Home Sales Reports. Tuesday’s worse than expected U.S. Existing Home Sales hit the equity markets hard as it served as strong evidence that the economy was cooling off.
Economists are estimating new home sales in July to be 330,000. Any data that is weaker than expected will weigh on market sentiment. This means that the prevailing asset allocation strategy will continue with investors shedding risky assets in favor of the protection of the Treasury markets.
Toll Free: 800-971-2440
DISCLAIMER: Futures and options trading involves substantial risk of loss and is not suitable for every investor. The valuation of futures and options may fluctuate, and, as a result, clients may lose more than their original investment. The impact of seasonal and geopolitical events is already factored into market prices. Prices in the underlying cash or physical markets do not necessarily move in tandem with futures and options prices. In no event should the content of this correspondence be construed as an express or implied promise, guarantee or implication by or from Brewer Futures Group, LLC, Brewer Investment Group, LLC, or their subsidiaries and affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Loss-limiting strategies such as stop loss orders may not be effective because market conditions may make it impossible to execute such orders. Likewise, strategies using combinations of options and/or futures positions such as “spread” or “straddle” trades may be just as risky as simple long and short positions. Past results are no indication of future performance. Information provided in this correspondence is intended solely for informational purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.