Oil markets have shown they are more than capable of large movements but today’s movement is the largest we’ve seen since July and showed that the bears are still very much alive and in control as they took 5% of the price of Oil in one day. OPEC nations have been cutting production in an effort to boost oil prices to sustainable levels, but at the present rate it would seem the global market as a whole is not consuming enough Oil. US crude inventories shocked the market today showing a strong surplus of 8.21M (1.97M exp), this is at odds with the current market thinking that Oil markets will be bullish in the wake of OPEC. The reality it would seem is that with a mild winter consumption has not been very strong and as a result OPEC nations may be forced to extend cuts in the long term in an effort to bolster prices. The question will be if those OPEC nations have the stomach for further production cuts, as a large number of them are currently struggling as it stands internally.
For Oil traders it’s a technical dream as the bears have crushed lower on the back of today’s news. Right now oil is trying to claw back some of those losses and the bulls are mounting some resistance on the new daily candle. So far it’s come up short and the 100 day moving average looks to be holding back any further momentum. If we do see a further fall lower I would expect to see the 50.0 fib level be the ideal target for traders looking for a strong support level in the market. This also coincides with a key support area around 49.00, so I would anticipate this would be a key holding area and somewhere that the bulls will look to take control of. However, the only minor caveat is that I would expect OPEC to come out swinging if they thought they were losing momentum or to at least add some comments.
Moving across to the US markets and positive economic data continues to be strong for the US economy, with the ADP non-farm payroll change coming in much stronger than expected at 298K (190k exp). This shows there is a large amount of positive sentiment in the market for the economy and labour market will likely be a key driver as Trumps policies come into act. With non-farm payroll due at the end of the week it will be interesting to see if there is a strong correlation.
For the technical aspect of the S&P 500 there is of course the strong channel which has formed in the market and continues to look key for trading. The 20 day moving average continues to act as dynamic support and is currently riding against the bearish channel trend line. Despite the recent fall down to the trend line this could by the market waiting to see regarding Trumps policies, but the bulls will still be out there looking for a chance to strike.