Crude has a flame to it

February 3, 2015 02:03 PM

Crude oil has a flame to it. As I write this on Feb. 3, the March 2015 contract trades $3.00 higher at $52.60. Four sessions ago on Thursday, Jan. 29, the contract traded to a March 2009 low of $43.58, finishing that session marginally higher from the prior close. That Thursday session was rather non-descript as it unfolded. Another in a series of new multi-year lows, the contract managed a rather mild range and an even narrower opening to closing price differential. There had been a few sessions of similar ilk in the last weeks, including one to start off last week.

Instead of being followed by still further losses, Friday’s price action was the strongest since October 2010 with open to close gains of $3.61, leaving Thursday’s session in striking contrast to the surround sessions decline and then recovery. The advance from last Thursday’s low and today’s high is also a bit of an outlier, having last been bested back July 2012 with a $10.70 advance.

Aggregate open interest peaked in June 2014 along with prices. We had an interesting view back then. Open interest came lower along with prices untill November. Then open interest began to ratchet again higher till early January when it began to attract continued and more substantial position gains. Today, surprisingly, open interest is only about 40,000 less than June levels. The renewed willingness of traders to accept overnight positions in this contract was a sign that opportunity was more valued than prospects for a jarring 24hr period loss was feared.

The 14-day RSI had reached 18.09 in mid-December and with continued weak price action only fell to a low of 20.46 on mid-January on a then new low. On Thursday’s sub $44 low, this RSI rose marginally from Wednesday at 32.91 to 33.21 indicating bullish divergence.

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About the Author

Martin McGuire, managing director at TJM Institutional Services