Trader's Daily Notebook: Watch Oil's 10-Day Moving Average to See If It Goes Lower

 | May 08, 2017 | 7:00 AM EDT
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There's been quite a bit of interest in frequent updates on light crude oil futures, so I thought I'd start by posting an updated daily chart, and make sure everyone saw the bullish reversal that triggered beneath $45 during Friday's session.

Light Crude Oil Futures -- Daily Chart

The reversal happened late Thursday night during the Globex session, when liquidity is at its lowest, and frankly, when nearly no one was watching. Though not identifiable on the daily chart above, crude broke beneath $45 and tested $43.65 within the span of seven minutes. Three to four hours later, the contract was back above $45.

We'll learn a lot in regards to the depth of demand in and around $45 as price consolidates and back-tests the mid-$40s over the coming week. If the recent plunge from the low $50s has further to go in the immediate term, I would not expect to see even a single close above a declining 10-day exponential moving average.

For E-Mini S&P 500 futures (Es) buyers, Friday was a pretty nice day, but things started off a bit dull. As you'll recall, we entered Friday's auction with an eye toward rotational trading between 2387 and 2380.50, opting to avoid any sort of initiative (breakout) trading until value began to build outside that incredibly tight 6.5-handle range. Given how quiet the regular sessions had been the prior four days, I wasn't overly optimistic buyers would turn aggressive. Clearly, I was happily mistaken.

Take a look at the three charts below, keeping in mind each chart displays all regular session trading dating back to Thursday, April 27. The first chart's data stops two hours after the open. The second chart's data stops fours after the open. And the third chart displays the entire session's data.

S&P 500 Futures -- 15 Min Intraday Chart 1
S&P 500 Futures -- 15 Min Intraday Chart 2
S&P 500 Futures -- 15 Min Intraday Chart 3

Shortly after Friday's open, I put a note out on Twitter that for the first time since Thursday, April 27, and based on the 24-hour contract, value had finally begin to build above 2387. My view, and the view discussed in Friday's Trader's Daily Notebook, was that as price continued to gain acceptance above 2387, the odds of bullish price extension toward the big figure (2400) would climb.

Without spending too much time on the charts above, I simply want to note the buildout of volume (via the yellow bell curve) that occurred during Friday's regular session, above 2387. That was our primary clue that price was gaining acceptance, and likely to move higher.

By recognizing that value was beginning to migrate higher, those currently short or thinking about becoming so should have had ample time to adjust their positions as they saw fit. Suffice it to say, that also means anyone wanting to be long had more than enough time to establish a day (or swing) position.

S&P 500 Futures -- Daily Volume Profile
 

A big test for bulls come Monday morning will be whether demand remains strong as, or if, price dips back into the upper-2380s. But based solely on Friday's break higher, we'll enter the new week with an eye toward higher prices and a new major swing high.

So, we'll be looking for bullish continuation to Friday's late-day rally. Our initial line in the sand will be 2387 to 2388. So, while Friday's afternoon buyer would rather not see any trading beneath 2392, as long as value remains above the upper-2380s, our baseline expectation will be for bullish continuation above 2397.50 and the big figure (2400).

S&P 500 Futures -- 15 Min Volume Profile
 

Weak demand toward 2387 to 2388 is the last thing bulls want to see. A lack of interest among dip buyers from that area would give Friday's rally a failed breakout look, and likely encourage an immediate slide through 2379.50, and on toward 2370.75.

Any trading or volume profile-related questions can be posted in the comments section below, emailed to me at parkcityyeti@gmail.com or posted to my twitter feed @ByrneRWS.

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