Once again we got another surprise in the crude stocks number as it hit the wires this morning. The trade was looking for a drop of 1.7 million barrels. Instead it got 3.2 million drop.
Crude oil had been weaker ahead of the data on concerns that Libyan oil exports might be on the rise but it rebounded when the EIA data hit.
Ominously, the market could not hold its gains and begin to retreat once again.
This price action is confirming my suspicions that the massive hedge fund net long position in the market ( a position that was drawn down somewhat in last week's COT data) is becoming more of a concern to players. When rallies are attracting long liquidation instead of a batch of brand new hot money flows, one has to be cautious.
Here is the chart.
As I noted yesterday, the market could fall down to the uptrend line and still maintain the bullish posture. That comes in near $103.50. It is also the 25% Fibonacci Retracement Level of the entire rally that began early this year. See the red ellipse....
The former resistance level, now turned support, near the $105 level, finally gave way today. Under normal circumstances, the loss of that level would portend lower prices. However, we have a big payrolls number out tomorrow and there is the possibility that if the number comes out stronger than what the market currently expects ( and it does look as if the market is expecting a good one - certainly copper does ) then we might see crude move higher on ideas that consumers are more likely to maintain strong demand domestically for gasoline as they head out for summer vacations. That plus the fact that economic activity might increase.
I have no idea what we might get on that volatile payrolls number but am just postulating a possible market reaction.
The flip side is that if the number is poor, crude could succumb to further downside follow through. We will just have to wait and see.
I will try to get some additional commentary up later today. It has been a very busy day....
A quick note - gold continues to struggle with this $1330 level. There has been a fairly rapid build in speculative longs in that market as well so the longer it cannot break through this current cap, the more the odds increase of some stale long liquidation. Again, it will be at the mercy of the payrolls data tomorrow.
It will be interesting to see if we do get a strong number, how gold reacts to it. Many will expect a strong number to pressure the price of the metal as it will lend credence of a sooner-than-expected tightening of interest rates by the Fed. It is possible however that some might see a strong number as a key ingredient to the inflation recipe. Again, I have no way of knowing how this market will respond.
Guess what - no one else does either, in spite of their reckless assertions to the contrary.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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