2019 and much of 2020 has been a challenge in the sense how equity markets are defying economic indicators and challenging valuation norms. We can talk all day about the wall from money from Central Banks, but the cold hard truth is market turns when there are no more buyers or no more sellers.
This is the situation we find ourselves with crude:-
--> Crude has broken down from the uptrend line from the 2016 trough and is now retesting the ex-trend line support.
--> Short-term indicators suggest crude is overbought and should see some waning momentum in the near term
--> The fact the short-term bounce was supported by a SSR suggests there are buyers or lack of sellers near the $50 level
The high probability bet is a near-term retracement, the key question is if the $50 handle will hold. If it does, long crude is the trade of the year; if not short crude is the trade of the year.
We can talk all day if the demand shock from the Coronavirus is a short-term event, or OPEC's ability to cut supply in the face of domestic budget deficits, or Russia's willingness to stay align with OPEC or if the refinancing wall for US shale E&P will result in lower shale supply or Iran will close the Straits of Hormuz, the truth is, we don't know.
The only certainty we have is the knowledge that the $50 handle is make or break for crude and the broader equity space.
This is the situation we find ourselves with crude:-
--> Crude has broken down from the uptrend line from the 2016 trough and is now retesting the ex-trend line support.
--> Short-term indicators suggest crude is overbought and should see some waning momentum in the near term
--> The fact the short-term bounce was supported by a SSR suggests there are buyers or lack of sellers near the $50 level
The high probability bet is a near-term retracement, the key question is if the $50 handle will hold. If it does, long crude is the trade of the year; if not short crude is the trade of the year.
We can talk all day if the demand shock from the Coronavirus is a short-term event, or OPEC's ability to cut supply in the face of domestic budget deficits, or Russia's willingness to stay align with OPEC or if the refinancing wall for US shale E&P will result in lower shale supply or Iran will close the Straits of Hormuz, the truth is, we don't know.
The only certainty we have is the knowledge that the $50 handle is make or break for crude and the broader equity space.
