Three-Wave Drop on West Texas Intermediate

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheLFB-Forex) -- Crude oil markets are oversold in the near-term, and hitting main support areas that will be difficult to easily break. West Texas Intermediate (WTI) (94.00) has a neutral momentum read in the mid-term. The four-hour trends are holding their short-sided direction, which sets up a sell-the-test-of-resistance play from the next upside move towards 96.00 on WTI trade.

The potential for new trade signals to form today is weak, after the recent explosive long and short intra-day moves that hit for 30-minute periods in the previous few sessions finally found support. The reversal through resistance at 100.00 on WTI has created a barrier of upside resistance that will be very hard to break. Now is not the time to be holding WTI positions for the long term.


News wires are very quiet regarding crude oil valuations, ahead of the Wednesday U.S. Oil Inventory numbers and FOMC interest rate statement and press conference. Today is not the day to be looking for crude oil trades.

WTI Technical Outlook:

WTI Four-Hour Chart:

Trading under the low of May, and the massive swing point formed at that time at 95.00.

The 100-day SMA (orange line) is at 100.0 resistance.

The 200-day SMA (red line) is holding support at 92.00.

ABC potential:

A leg reversed from a test of 103.00 resistance to test 96.20 support.

B leg move higher to test 100.00 resistance.

C leg has completed the test of 91.50 support.

Call to action:

Look to sell the upside tests of resistance between 95.50 and 96.50, if global equity trade is being sold. No long trade signals until a weekly chart can close above 97.50. Want to learn new-generation global charting? TheLFB Training Academy

Where To Now For WTI?:

  • Generated a mid-term sell signal from 96.50 on June 16, 2011,targeting 93.00 which has completed its cycle
  • Generated a quick near-term buy signal on June 21, 2011 with a break above 94.00 which only targets 94.40 before hitting intra-day resistance
  • In a very strong short cycle that will not reverse any of the mid-term short trends until a Weekly chart can close above 97.50
  • Downside targets will include 91.50 and 90.50 if S&P 500 trade closes a Weekly chart below 1250
  • Expect upside tests of 96.50 resistance to fail if massive buying volume does not hit the market soon
  • Low-volume ramps higher are creating subsequent price action weakness when volume increases on the down days.
  • Strong short sentiment still dominates in the mid-term
  • This is a technical and sentiment review that is signaling to sell the WTI on any upside tests of main resistance. Want to learn new-generation charting? TheLFB Service Examples

    WTI Support and Resistance:

    Strong buying activity was seen at 97.00 on WTI in April and May, but now breached as support these areas will create huge upside resistance. Market alerts will be sent to subscribers as sustainable momentum builds. Main WTI support: 91.50. Main WTI resistance: 97.50.

    USO Technical Outlook:

    The outlook for USO ( USO) (36.90), the exchange-traded fund (ETF) that tracks oil momentum, is for consolidation above 35.50, and to struggle to easily break (39.00) resistance. The ETF is likely to continue to lag behind the main moves seen in WTI futures contract trade, as major oil price action is taking place while the U.S. session is closed.

    USO is in a short trend across all time-frames, and has developed a sell-resistance pattern of trade. No long signals will form until a Weekly chart can close above 39.50.

    USO Support and Resistance:

    Any existing short-USO positions should be closely monitored while recent price action is absorbed. USO may struggle to offer a fair reflection of the choppy 24-hour moves currently being seen in crude oil futures trade, and the Weekly chart close may offer some clarity.

    Main USO support: 34.50. Main USO resistance: 38.50.

    Global Correlations:

    WTI 200-day Simple Moving Average (SMA) is at 92.50. WTI has a 36-month 75% correlation to S&P moves, and a 90% correlation to the euro (Eur/Usd) currency pair.Daily trading range on WTI is $2.70, which is below the historical norm and indicates decreasing speculative interest, and increased volatility as support and resistance areas are tested.

    Previous Signals:

    Last three months of potential WTI trade signals have generated eight trades, seven of which have completed, that covered 90 points of overall movement. Any misses have come on days that instant volatility hit the global markets in reaction to breaking news headlines. Most signals have been generated from 1-hour chart algorithms. Want to create a structure program of daily work? TheLFB Trade Desk Methodology

    Alternate 24-Hour Trade:

    Investors who do not want to wait for their regional cash market to open, or do not have 24-hour access to the market they have open positions in, are able to access the 24-hour currency market. There is potential to analyze and trade currencies in a high-volume market that is supported by the global inter-bank system. Investors can trade currencies in-line with a rising global market, or trade ahead of a falling cash market open. Being able to use currencies offers the opportunity to be in a trade before the regional market opens.

    Traders could trade the currency pair EUR/USD in-line with the potential seen in global crude oil movement. Buying or selling the US dollar against the euro is a simple process of placing a sell order on EUR/USD, and then closing that same position in a similar way that equity trades would be managed.

    However, a stronger trade signal in WTI would first need to be seen before looking for correlated forex trades.

    Trade Desk Support:

    TheLFB trade desk generates trade signals that highlight specific price points to trade from, and market alerts that highlight sentiment changes in global markets. TheLFB provides 24 hour market support for traders, investors, and institutions. Service offerings include analysis of three asset class areas:
    • Foreign Exchange (Dollar Index, EUR, GBP, AUD, CHF, CAD, JPY)
    • Equity indices and ETFs (SPY, DIA, GLD, SLV, USO)
    • Commodities (Gold, Oil, and Silver)

    TheLFB is great for all skill levels. Receive market support, and get TheLFB trader advantage. Sign up today!

    Marco Hague is one of the founders and principals of The London Forex Broadsheet (commonly known as TheLFB), a global forex trader portal with headquarters in the U.S. Hague began his career with the Bank of England dealing with foreign exchange control, and he has been trading for the last three decades. He has been involved with institutional risk asset ratio analysis and the implementation and maintenance of institutional trade desks globally.

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