The Week In Review For Crude Oil - September 15th - 19th, 2014

Crude Oil experienced a round trip type of week in that it closed roughly where it opened but slightly lower. I've been watching the 92.20 - 92.40 area to serve as key support which was the year's swing low back from January and February. Last week took out that low to establish fresh lows for the year but closed right on this support area.

Fast forward to this week and we opened right in this area with buyers stepping in to push the market right back up to resistance. Once we hit the resistance area, there was "quiet" liquidation coming in while the market appeared to find balance. The last CLV14 (October) contract trading session remained within the previous session's trading range but continued liquidation became much clearer. The EIA inventory number was reported during this session as well which saw a build in inventories to 3.7 million barrels. There was a continued seller response to this number but the seller "wheel" was already in motion as the market pushed lower which retraced roughly half of Tuesday's range.

Then on Thursday, the first "formal" trading session on the CLX14 (November) contract, we saw a small roll gap between V14 and X14 and sellers ran with that gap to push the market back down into support. This was a great day in going with the seller imbalance as the market one time framed lower for the entire session. One time framing in layman's terms is when each 30 minute period does not breach the previous 30 minute period's high for down moves and low for up moves excluding inside periods in which neither the high or low of the previous period is breached. When this occurs, its a clear sign that the market is trending and one needs to go with that trend until the one time framing stops.

The market (CLX14) ended the week back down at the referenced support area and initially saw selling into the pit open which was short lived. As I just mentioned, the one time framing down stopped just before the lunch hour (EST) and proceeded to balance for the remainder of the day. One interesting note that occurred for the rest of the session is that the day's cumulative delta (difference between the bid and ask volume) continued to rise. This could be evidence of short covering and/or new longs being put into the market. I would suspect it was short covering and potentially further contract roll dynamics which should may be taken with a grain of salt.

Going into next week, we're at a key level still and we will see some clear indications of what the market is looking to do. Either we bounce off this support level and run back to test resistance again while closing out the contract change gap or we break below this support area and run to the next level of the 88 area.

Here's a map of the week's action via a Market Profile chart with some potential scenarios that "could" play out going into next week. I say "could" and not "should" as we never know what the market will do and remaining open-minded is the best approach which allows for a reaction rather than a surprise from a bias. I encourage you to click on all the charts (courtesy of Sierra Chart) below to increase the size and see more detail.

Here are some higher time frame charts that I'm watching for indications of trend continuation and levels of support and resistance.

As you can see on the higher time frame charts, the bearish sentiment is still well in tact. We've seen a pause at the current support level which is important to watch for a trend change but this past week's bar looks like a failed move. One thing to note is that this could just be evidence of potential balance returning as the one time framing down has stopped. Again, we're at the year's lows so its a very important level to keep an eye on.

In terms of rotations around higher time frame value, we can see that the market is trading within the previous year's range and testing both ends of the previous value extremes. One note about the current scenario is that we're trading outside of the current year's developing value. A continued rejection of developing value could see a breach of last year's low as we failed to take out last year's high. These are obviously huge target areas for long-term money and something to be closely watched.

Lastly, on a very large time frame perspective, we can see huge excess (rejection) being made at the key $100/barrel level while the $92/barrel has provided huge support with excess below. We know this is a huge psychological level. We have not taken out a previous year's low however since the big reversal in 2009 which could be a side effect of the liquidity gushing out of the Fed with its QE program but that's a completely different conversation in of itself. But since the market pushed higher in 2011 (most recent swing high in cycle), we've experienced major consolidation/inside bars of the 2011 year's range. This could signal a big move when price finally breaks out.

Hope this was helpful in understanding the market's current context. In summary, the overall trend is bearish but we've reached a key level on a higher time frame which may see a stall in this trend and see an eventual reversal. Further selling however could see a run for last year's low.


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