Crude oil plummets with the front running futures contract losing 193% in trading, and is currently in the negative fixed at -$17.00 per barrel. In my 35 years of trading the commodity markets I have never seen crude oil go negative. In fact, this is the first time in history that crude oil has traded into negative territory.
With the COVID-19 virus resulting in a global lockdown so to speak, the demand for crude oil and its component gasoline have seen demand drop excessively. Many analysts consider this dramatic drop assign that demand for the risk-on is waning. This market sentiment is one of the primary reasons that gold and silver both had moderate gains on the day.
As of 4 PM EST, gold futures basis the most active June contract is currently trading at $13.40 higher on the day, and fixed at $1712.20. It traded to a high today of $1718.40, and a low today of $1685. The recent decline which began on March 14th occurred on the day that gold hit its highest trading value this year reaching $1788, but closing well off of those highs. The following three consecutive days were red candles, which illustrates that the market closed below its opening price on those days. And today’s lower opening at $1685 means that for four consecutive days we have traded with lower lows.
The key difference in today’s pricing action is that the price recovery in gold resulted in a green candle and when combined with Friday’s candle forms a pattern called a piercing line.
The criteria for this pattern contain four primary rules. The first of which is that this pattern must occur when the market is in a defined downtrend. During this downtrend the candle of the pattern must be a red candle, meaning the prices close below the open. The following day the candle formed must be a green candle, meaning that it above its opening price and the price must close above the mid-point trade of the prior candle.
According to Investopedia, “A piercing pattern features two days where the first is decidedly influenced by sellers and where the second day responds by enthusiastic buyers. This is potentially an indication that the supply of shares that market participants want to sell has been depleted somewhat, and price has been driven down to a level where demand for buying shares has increased and been shown to be evident. This dynamic seems to be a somewhat reliable indicator of a short-term upward forecast.”
One method used to confirm the strength or weakness of this pattern besides where it occurs in a trend is to look for a bullish divergence in the MACD and the stochastic indicator at the same time. Such is the case for today’s occurrence.
There is one other critical parameter that you would want to see in the upcoming days, the most important of which is a confirming candle. This means that tomorrow’s trading range will contain a higher high, a higher low than the previous day. Also, it must result as a green candle with the closing price well above the opening price. The bigger the confirming candles body sizes the more it confirms the piercing line pattern.
Wishing you as always good trading,