Following this weekend’s news that the massive Calgary fire, while still spreading, may soon be under control courtesy of some wet weather and favorable winds, as well as the stunner from Saudi Arabia that Ali al-Naimi was out, replaced with a puppet of the hawkish deputy drown prince Mohammed bin Sultan – a succession many saw as bearish for future oil prices – algos had refused to give up on recent momentum, and pushed WTI just why of $46/bbl overnight. However, to Bank of America this proved too much, and the bank’s strategist Paul Ciana has come out with a new trading recommendation as follows: “Sell WTI Crude Oil: Sell crude oil into event driven stress at $45.75, stop at $48.25. Target market profile levels of $38.50 and possibly $35.25.”
If this was Goldman, we would say sell everything and buy WTI on 3x margin. With BofA, however, we are less sure – this may even be a correct recommendation…
Here are the details from the BofA technician:
Price action at fair value resistance suggests correction
Three intraday crude oil rallies were sold last week resulting in prices closing near the open of the trading day. According to Japanese candlestick analysis; Wednesday, Thursday and Friday each formed a doji* candle suggesting indecision among market participants to effectively push prices higher. On April 29th crude oil reached an intraday high of $46.78 and closed near the open of the day forming the first of four doji candles in six trading sessions. Thursday can loosely be considered a gravestone** doji, which as the name implies is bearish.
Aggregate volume and open interest bearishly diverge
The rally to the YTD high occurred on light volume. Considering the total (aggregate) volume across all WTI crude oil futures contracts, volume during the rally in the latter half of April was less than the rolling 15 day average. The decline from the YTD high occurred on greater than average volume. Since the rally began from the YTD low, the trend in aggregate open interest has bearishly diverged from price.
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