Tuesday, August 19, 2014

WTI Crude Met Target $95

Crude met a target today at $95 from an objective set 2 months ago when the front contract (Aug) traded at $105.94.  A 1 lot short would have returned $10,940. 

It has taken some time to travel the $11 crude fell and so the oversold conditions at this stage are not extraordinary.  A settle at or near $95 would create a new 5 month low settlement and a long bearish candlestick.     

When we recommended this short, ‘non-commercial’ accounts had a record net long position of 480,000 contracts, volume was at an extreme high level and we believed too many were making bad judgment calls on the prospects for scarcity of a well available commodity. Technical conditions noted and reversal patterns were discussed. 

Finally, the target shown at $95 was somewhat arbitrary and based loosely on prior lows and a sense of overbought conditions.  Candlestick analysis does not provide many instances where ‘objectives’ are called for and I would say that under candlestick analysis, Crude still treads heavily and does not show signs of bullish reversal yet.  I am comfortable that we have taken enough out of this trade and would point to the change in CFTC described ‘non-commercial’ positions (lower by over 31% from our initial review) from 480K net long on June 24 to 328K in the latest report August 8th). 

For active clients, we recommended the following engagements during this positioning:
Short at 105.94 (June 24)
Covered 1/3rd at 101.45 (July 11)
Reset to Full Short at 104.12 (July 24)
Cover 1/3rd paying 97.59 (August 4)
Objective Reached Cover balance 2/3rd at 95.00 (August 19)

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