The crude oil market and Thanksgiving have a tumultuous relationship. Unfortunately, we discovered this the hard way. Some of the largest, and most devastating (to complacent traders attempting to enjoy their holiday) selloffs occur on or about Thanksgiving day.
Last year we saw oil futures fall $10.00 in the Friday trading session after Thanksgiving. Luckily, this was a half day, or who knows what the damage might have been. In 2018, oil dropped 10% on Thanksgiving week, and in 2014 oil dropped just under 14% on the shortened trading week.
There are a few logical reasons for the downside volatility, but I believe it can mostly be attributed to the last trading day for the December oil futures landing on this particular week. Other factors that play a role in the chaos are the presence of a late-November or early-December OPEC meeting and lightened trading volume due to the U.S. holiday and market closures. In any case, the combination of these things is a recipe for disaster, particularly when there is a fundamental change in the landscape.
Today, November 21, is the last trading day for December crude oil. Contract expiration often results in excessive volatility in the direction of the trend (precisely what we are seeing). However, we often see trend changes once the dust settles; hence there is some hope for the bulls.
The OPEC meeting falls on December 4 this year, so the uncertainty and, therefore, volatility might extend a little beyond this week. Further, illiquid trading conditions have already begun taking hold of markets and will likely extend into the New Year. Thus, those looking to play the upside in oil should be patient and expect elevated risks.
Chart Source: QST
According to our friends at MRCI (Moore Research Center, Inc) there is a seasonal buy signal on November 29 that extends into the first week of January. Specifically, the data collected by the firm suggest that going long oil on or about November 29 and holding through January 5, has been profitable in 12 of the previous 15 occasions.
Chart Source: QST
Looking to the chart for guidance, we caution against trying to aggressively buy the dip going into Thanksgiving. Should trendline support near $75.00 fail to hold, we would likely see a quick move to the long-term uptrend support level of $70.00.
According to the chart, somewhere near $70.00, or $65.00 if the optimistic traders are lucky, would be a place to consider getting comfortably bullish. Of course, the $70.00 area may hold and a rally might ensue from there, but according to both seasonal and technical analysis, the odds favor a further washout before stability and strength are probable.