Retail Sales Jump Start Stocks, Crude
Fundamentals
Crude Oil futures rose sharply yesterday, propelled by the rally in stock prices and the API report indicating that inventories have fallen. Traders will now look to today's EIA report to see if the data in this report also shows a drawdown. Equity prices rose sharply on what appears to have been a short squeeze, coupled with optimistic retail sales figures. It looks as though stock and commodity bulls were waiting on some sort of positive data to justify a buying flurry. The IMF also improved their guidance for second half growth, indicating the lackluster demand for petroleum could draw down stocks further in the coming weeks and months. The 4th of July holiday weekend also gave Oil traders a bit of positive news, as demand seems to have been stronger than previously was expected according to Mastercard's SpendingPulse report. This recent data is a sharp contrast to the lackluster data coming in for the past month. Oil traders will now have to decide whether this uptick in demand is a sign of things to come or a temporary phenomenon.
Trading Ideas
The short-term fundamentals have taken a swing in favor of Oil bulls, but cooler heads may wish to see more data before they buy into a longer-term bullish mindset. Likewise, the chart is showing a short-term bullish reversal pattern, but prices may have to cross into the 80's before many are convinced that the market is indeed turning higher. For this reason, some traders may wish to enter a long futures contract on a close above the 80.00 level, with a protective stop at 78.50 and an upside objective of 84.00. The trade risks roughly $1,500 for a potential reward of roughly $4,000.
Technicals
Turning to the chart, we see the August Crude Oil futures formed a doji on Friday, followed by yesterday's large green candle. The can be seen as a short-term bullish reversal. Prices are approaching the 20 and 50-day moving averages. A close above the averages could provide some sustained momentum in the near term, while a failure to cross these averages can be seen as a technical defeat for bulls. The momentum indicator failed to keep pace with both price and RSI, hinting that the market may not be able to hold yesterday's gains.
Robert Kurzatkowski, Trading Specialist
