Previous week: 20 February 2017 – 24 February 2017
FOMC Meeting Minutes—Thursday 23 February 2017 3am
The minutes mentioned that a rate hike will occur “fairly soon”. March rate hike odds current stand at 26.6%.
Crude Inventories—Friday 24 February 2017 12 midnight
The fight between the Sheikhs and Shales continues. US crude inventories increased for the 7th consecutive week. Inventories was a build of +564k barrels.
Coming week: 27 February 2017 – 03 March 2017
Australian GDP q/q—1 March 2017 8:30 am
AUD/USD is currently at a strong resistance zone. Will the strength in the Aussie dollar continue or will it stutter? The previous quarter came in at -0.5%. Expectation for Q4 GDP is for +0.7% increase.
Bank of Canada BOC Rate Statement and Overnight Rate—1 March 2017 11pm
Expectation is for no change in overnight rate and that it will be a non-event. Fundamentals of the Canadian economy had not changed significantly to warrant a rate cut. Oil is still hovering at $50+ a barrel which is a far cry from the good old days of $100. Global uncertainty has tapered off since President Trump took the Oath of Office. Overnight rate has stayed at the current depressed level of +0.50% for 13 consecutive meetings since July 2015.
Crude Inventories—Wednesday 1 March 2017 11:30pm
The Sheikhs vs Shale continues. Will it be the eighth consecutive of inventory build?
On the monthly chart, it is seen that 0.77-0.8 acted as an area of strong resistance in the past.
When looking at the weekly chart, we see that 0.77 is indeed a price of strong resistance. The last 2 weekly candlesticks are bearish pinbars, indicating that there is good selling interest at 0.77.
Selling at 0.7700 with a 55-60 pips stop and taking profit at 0.7170 would give a reward to risk ratio of about 8-10.
Counterarguments to this trade idea would be as follows. The price of iron ore continues to be strong and may continue its upward trajectory. The Fed (for whatever reason) may just choose not to hike their interest rates in March (despite having already met their labour and price stability targets). Fed hike odds in March currently stands at 26.6%, which is pretty low. When looking at the past 3 weekly candlesticks, we see that they are all pretty small which makes the reversal signals less trustworthy. When looking to the left of the 3 most recently candlesticks, we see many larger bearish candlesticks which are of higher quality when predicting a reversal back down.
Whilst the OPEC nations agree to cut production which led to a rise in oil prices to $54 a barrel, the American opportunists decided to repay the compliments by restarting their oil rigs. This week, the Baker Hughes US rig count continued marching northwards. It increased by 5 from 597 to 602. Crude oil inventories in US continued to rise by +564k barrels this week.
In the last week, OPEC said that they are currently working on extending and/or expanding their 6 months production cut deal. It could be done by cutting production of oil further and/or extending the production cut deal beyond the 6 months that was agreed upon.
When looking at the weekly chart of WTI, we see that it is having trouble breaking through the $54. When focusing on the last 12 weekly candlesticks, we see that they are small candlesticks indicating a contraction in volatility which was akin to the 8 weeks of consolidation in price of oil in the middle of 2016. During that period of time, we see that there were many dojis and pinbars with upper and lower wicks where prices whipsawed up and down in a narrow range. With the current period of sideways consolidation, understanding the fundamentals of oil will come in handy when coming up with an opinion.
When looking at the daily chart of WTI, we see that oil is taking support at around $51 and selling off at resistance at $54. At the moment, oil is trending sideways. My opinion is to go short at $54 and setting target at $51. Another way to play this would be to go short at $54 to hold out for a bigger move down to trendline support at $43.
It is advisable to wait for some bearishness in the daily chart in the coming week before selling oil short.
Thoughts of the Week
This month (2 more trading days left to the close of the monthly candlestick) TSLA formed a giant bearish pinbar at the top of the range. Selling Tesla short on retracement back up to $270 would seem pretty attractive for a move back south to $185.
The Business Insider article below is really worth the 10 minutes spent reading given that Snapchat is about to have an initial public offering next week. With their poor growth in active users and their inability to successfully monetize their large user base (as seen by them not making any profit), going short on Snapchat may just be a good trading idea in the near future. “Stories” is what Snapchat is famous for and just last Friday Whatsapp just launched their own version of “Stories”. Talk about market timing by the conglomerate, Facebook.