It has been a fire sale on the commodities markets thus far in the U.S. session. Both WTI crude oil and gold are trending south, dominated by bearish sentiment. If the current dynamic holds, we could be seeing an intermediate-term revaluation of both asset classes.

Just like it does every non-holiday week, the crude oil inventory cycle kicks off later this afternoon. The API stocks report came in strong last Tuesday at 1.099 million barrels. If projections for tomorrow’s EIA crude inventories are any indication (estimated +1.267 million barrels), we could be in for another strong API stocks report.

WTI Crude Oil Technicals

The first day of May has been a tough one for WTI crude bulls. Price has fallen by more than $1.25 and is threatening to extend intraday lows. At press time, this market is testing the bottom of a key compression zone on the daily chart.

It appears that sellers are committed to driving this market out of consolidation and to the $67.00 handle. The good news is that there are several support levels on the horizon:

• Support(1): 38% Retracement of Current Wave, $66.61
• Support(2): Bollinger MP, $66.48
• Support(3): Daily SMA, $65.33

Bottom Line: It looks like traders are already pricing a strong inventory cycle into the oil market. A counter-trend play from just above the 38% retracement at $66.65 is an ideal entry for playing rotation back to the $67.50-$69.00 value area. With an initial stop at $66.25, this trade produces 40+ ticks using a 1:1 risk/reward management plan.

There is an enhanced degree of risk due to the current intraday downtrend. However, the daily and weekly charts show an intermediate-term consolidation phase. This fact gives me a reason to believe that the area between $66.75 and $66.49 has a good chance of setting up as a short-term bottom.