Thursday, August 25, 2016 11:09 PM EDT
Crude oil was the outperforming asset in August of 2016, with a gain of around 20%.
That could be impressive. However, for the short and medium term, we do not see opportunities in the crude oil space.
Chart-wise, crude oil has arrived in “no man’s land”. It is trading right below huge resistance, as shown in purple on the chart. Moreover, it was not able to break above its medium term descending trendline.
From a technical point of view, though not our primary indicator but only a supporting indicator, we see that the 90 week moving average (shown on the chart) is about to turn flat.
By far more important, though, are intermarket dynamics. In other words, which leading assets are trending, and how do they influence other assets? As we expect rates to rise in the short and medium term, we believe that move will push the dollar high which will keep some pressure on commodities.
So from several perspectives we see a consolidation in the crude oil market. With such conditions, it is better to simply give the market sufficient time to do its work, and certainly not try to outsmart the market. Patience is key.
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