The Producer/Merchant Category in the Disaggregated report scores a 100% on a 18m basis, and they continued adding longs into last weeks decline. So we have an extreme setup in positioning among this group of traders. The commercials are adding longs and removing hedges into this decline.
From a technical perspective - Even if you are in the Bear Camp here, you must observe the Wave symmetry with wave 3+5 both dropping $10. At minimum it is time for bear funds to lock in some profit before they close the books on June & report to their investors. When you have such a precipitous drop, it only takes some sideways action to start turning Averages and Channels neutral from down, & this is what we are seeing now. The 4 day Avg is now neutral & if Oil moves above $43.5 it will turn the 9day neutral from down as well.. The algo's wont stick around and watch their massive gains evaporate, so they will start ringing the register.
Looking at the technical picture: 1) We are currently moving out of the that has been in force since $52. 2) We are making higher lows on the hourly bars chart with $42 as a tradeable bottom. 3) A retrace to the 38% Fib line offers us $3 in profit. How to play this:
1) Go Long Aug CL $43.22
2) Sell the Aug CL $44 call for .90
Your upside is .78 on the future + .90 premium on the call for $1.68
Exit the Future on a move below $42 - Your loss would then be $1.22 on the future - .90 premium you collected or .32... This setup is almost 5-1 R/R.
Good Trading to all