Breaking It Down

We’ve been bearish on oil for ages, shorting back in October 2018 and playing most of the bounces and downdrafts along the way. So, we weren’t terribly surprised when May WTI futures dropped to zero, having suggested that very possibility when CL was testing its channel bottom just last week.

A drop through 19.27 would be reason enough to revert to short with 17.12 and 10.65 the only support between here and zero.

The drop to -40, however, was pretty shocking. The other huge surprise is that the Fed didn’t step in and “fix” things.

Futures held up remarkably well under the circumstances, though we’re seeing more fallout this morning, with ES currently off about 2%.This sets up an important test for ES and potentially SPX – the 2.24 Fibonacci extensions at ES 2728 and SPX 2703. More importantly, it could quite possibly trigger widespread selling as the 10-day moving averages (SPX 2775.12) and channel bottoms are breached – the two we identified as potential sell signals two weeks ago:

As we discussed last week, SPX’s SMA10 has crossed above its SMA20 – a bullish cross… For those inclined to follow the Fed’s lead, the safe strategy is to keep your stops reasonably close and to watch out for a drop back through the SMA10 and/or channel bottom. Either one is a signal for traders to sell and for buy-and-hold types to rein in risk.

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