A Crude Reality: Oil Price Hit 2023 Highs
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Our View
I mainly cover the S&P and Nasdaq futures, but I also follow crude oil. When crude oil went negative on April 17th 2020, I told the PitBull I wanted to buy oil calls, but was locked out by AMP futures. It was a once in a decade trade — maybe a once in a lifetime trade — that just wasn’t meant to be.
I told the PitBull that we will never see those prices again in our lifetime — and I’m not just talking about when oil went negative, but also the low prices we saw all around mid-April 2020.
I know this makes me sound old, but I actually remember the lines at the gas station during the oil embargo in 1973 and 1979. My parents went to the same Mobil gas station for over 30 years. These embargoes are always a geopolitical event, but something is happening right now. Despite steep discounts, Russian oil imports to India have fallen to a seven-month low as New Delhi turned to Saudi Arabia during the course of the war in Ukraine.
I don’t pretend to know it all, but there is little doubt that oil and oil production has been weaponized and I don’t think it’s going to stop. Russia and Saudi Arabia are widely expected to extend their voluntary 1 million barrel per day (bpd) cut for a fourth consecutive month into the October 4th minister meeting, while we still have record low oil reserves in the US and high demand mixed in with inflation and higher rates.
In a nutshell, I don’t think oil prices are going down. From Taiwan to China to Iran to Ukraine, it doesn’t seem all that impossible that some flash point couldn’t occur that sets off something wider. And if it occurred in the Middle East where the Strait of Hormuz was shut down, the price of oil would double.
(I have put some oil charts below in the technical section).
Our Lean
Is the S&P going up or down? The answer is, it’s actually holding in a very narrow channel. Look at the closing prices for Wednesday, Thursday and Friday: 4424.25, 4516 and 4521.50. After popping 165 points off the Aug. 25th low, this sideways consolidation was about the best case scenario for the bulls.
But, and there is always a but, the ES didn’t act great on Friday. After rallying to its highest level in about a month, the ES topped at 4547.75, traded back below the prior day’s high of 4541.25 and ultimately faded more than 26 handles to its closing price.
I thought there was a good chance we could trade back down to 4500 and that ended up being the overnight low coming into Tuesday’s session. Now the question is, will we retest that low today?
Our Lean: If the Globex low holds, the ES could go back up to 4535-4540. This could set up a move to 4550+. If the ES fails early, look for a retest of the Globex low and the 4490-4485 area.
My lean is to buy a lower open, especially if it opens 6 to 10 lower, which could set up a big rally. The Dax is down slightly on the day, but is up 120 points off its low as buyers have come.
MiM and Daily Recap
The ES traded up to 4547.75 on Globex and opened FRYday’s regular session at 4541.75. After the open, the ES traded up to 4547.50 at 9:35 and dropped down to 4521.75 at 9:49, chopped around, rallied up to 4534.75, sold off down to a higher low at 4522. From there, it traded up to 4541.25 at 10:14 and then sold back down to a new low at 4517 at 10:56. After a small uptick and a little back-and-fill, the ES sold off down to 4507.25 at 11:53 and rallied back up to the 4520.75 area at 12:58, pulled back to 4509.25 at 2:40 and then reversed up to 4523 at 3:31 as the early imbalance showed $210 million to sell. The ES traded 4518.75 as the 3:50 cash imbalance showed $1.5 billion to sell, down-ticked to 4516.25 and then rallied up to 4523.75 and traded 4522.75 on the 4:00 cash close. After 4:00, the ES slid lower and settled at 4519 on the 5:00 futures close, up 5.50 points or 0.12% on the day.
In the end, it was a choppy two-way trade. In terms of the ES’s overall tone, it closed higher on the day but was not strong. In terms of the ES’s overall trade, 268k traded on Globex and 1.086 million traded on the day session for a total of 1.362 million contracts traded.
Sunday into Monday, the ES made a high at 4531.25 at 8:30 am and sold off down to 4515.25 at 11:18 am and settled at 4518.75, down 2.75 points or -0.06% with 94k contracts traded.
Technical Edge
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NYSE Breadth: 72% Upside Volume
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Nasdaq Breadth: 59% Upside Volume
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Advance/Decline: 63% Advance
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VIX: ~$14.25
S&P 500 — ES Futures
4540-4560 remains key on the upside. Above 4573.50 and the 2023 highs could be back in play.
On the downside, bulls are looking for support in the 4493-4500 zone.
ES Daily
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Upside Levels: 4550-60, 4573.50, 4592-4600
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Downside levels: 4493-4500, 4478, 4450-56,
CL — Crude
Crude broke above 9 months worth of highs and is hitting new 2023 highs. A push to the 61.8% retrace would send it over $100.
Bulls will want crude oil to find support in the low-$80s to keep the current trend intact.
CL Daily
When we look at the weekly, one could see how a “worst case scenario” could open the door to significantly higher prices, as the 161.8% extension is all the way up at $172.
CL Weekly
Open Positions
Bold are the trades with recent updates.
Italics show means the trade is closed.
Any positions that get down to ¼ or less (AKA runners) are removed from the list below and left up to you to manage. My only suggestion would be break-even (B/E) or better stops.
** = previously mentioned trade setup we are stalking.
Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META, AVGO, UBER, CRM, AMZN, CVS, AMD, TLT and YM.
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JPM — Many are long from $143-145. This is a longer term swing. Trimmed $153s, then $157.50+ on 7/24.
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Down to ½ position vs. Break-even stop. Can make small, ~10% position trim if we see $160+
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If worried about a larger correction, can sell/trim north of $150 and look to re-establish lower (if we get it).
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XOM — Long from the monthly-up area at $108.50 — Trimmed ¼ to 1/3 at $112.50+. Aim for $115+ to get down to a ½ position. Break-even stop-loss.
Economic Calendar
Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.
Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!
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