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Inverted WTI Crude: Another Counter-Trend Play In View

Amid the circus-like atmosphere of the U.S. equities markets, WTI crude oil continues to show weakness. After a six-month bull run, price is entering correction beneath the $60.00 level. Sellers have dominated the past three sessions, driving the market south by more than $4.00 per barrel.

Volumes have been tremendous on the WTI futures markets. March WTI has already traded almost 500,000 contracts for the session. Substantial volumes are also being observed in the April, May, and June contracts as well.

If you are trading the CFD product USOIL, the futures data may not seem important. However, remember that the pricing of USOIL reflects the action on the CME WTI futures markets. As these contracts approach expiration, pricing in USOIL may become chaotic. We are not quite there yet but expect volumes to become more and more diluted as we move deeper into February.

WTI Crude Oil Technicals

One observation is striking on the WTI futures contract chain. Distant months are currently lagging in price. For instance, the current price for March WTI is $59.79 and April is $59.61. The contract is said to be “inverted,” meaning the big money players are expecting oil to sell off from current levels over the course of 2018.

March WTI Crude Oil Futures (CL), Daily Chart

In a live market update from yesterday, I outlined a long trading plan based on a Fibonacci support level. The $60.11 buy proved to be a success, posting a rapid move of over 40 ticks a bit earlier in the session.

Bottom Line: Again today, WTI crude is trending heavily to the bear. A long scalp from $59.11 with an initial stop at $58.99 yields 12 ticks on a 1:1 R/R trade management plan.

Like yesterday, this is a counter trend scalp, so use of moderate leverage is advised.

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Shain Vernier
US Analyst
Shain Vernier has spent over 7 years in the market as a professional futures, options and forex trader. He holds a B.Sc. in Business Finance from the University of Montana. Shain's career includes stretches with several proprietary trading firms in addition to actively managing his own accounts. Before joining FX Leaders, he worked as a market analyst and financial writer.
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