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Night Moves

03/28/11 10:50:39 AM
by Austin Passamonte

Here's the midterm price outlook for NYMEX crude oil futures.

Security:   CL
Position:   N/A

WTI crude oil futures listed on the NYMEX are among the most liquid and widely traded commodity markets in the world. Average daily volume between 300,000 and 500,000+ contracts make it right up there with Standard & Poor's 500 eminis and bond futures as actively traded markets. See Figure 1.

Graphic provided by: NinjaTrader charts.
But the past two weeks of trading just completed saw average daily volume plunge from the normal range noted above to half that or less from nearly 400,000 contracts to less than 200,000 contracts since the March 14th trading session (gold line in volume study) began. Meanwhile, price action went haywire and slammed all over the charts, making huge overnight moves and open gaps from one pit traded session to another.

It appears that crude oil futures were driven purely by global news and US dollar, euro, and yen gyrations while many big traders stepped aside. Volume is the lifeblood of structured market action, and the dramatic daily volume plunge witnessed here says it all.

At the time of this writing (March 27), CL prices have held daily close near the 106 recent highs zone. A descending trendline drawn from peak high of the March 7th session extreme high down through three most recent sessions shows a vertical magnet formed at this congestion zone. A clean break above the 105.80 area and into new multiyear highs has clear sailing upward. A rejection lower and drop back through the 102 area probably backfills open gaps to the upper 90s zone, if not substantially lower.

The whole world is expecting crude oil prices to continue straight north as summer driving season and demands for gasoline increase; $4+ gallon gas might meet solid rejection and substantial cutbacks in driving habits of cash-strapped Americans this summer. Time will tell, as it always does: in hindsight. Meanwhile, keeping an eye on the daily chart is our road map to destination bullish or bearish crude.

Austin Passamonte

Austin is a private trader who trades emini stock index futures intraday. He currently trades various futures markets from home in addition to managing a trader's educational forum

Title: Individual Trader
Address: PO Box 633
Naples, NY 14512
E-mail address:

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