& DB Wild Card
Derivatives dark matter and Deutsche Bank
Oil had been coiling dramatically, in smaller and smaller time frames, creating layers of coil. The scale of the coil, in time and size of wave lengths suggest a large run when it pops.
On Wednesday when OPEC announced an agreement to announce a production cap in November, the market started rip through the layers of that onion to the upside.
Overnight the action held the high of the move, confirming, bull flagging, and price on 9-29 neatly tore through the last layer of the onion, establishing a breakout.
However, midway through the day of this significant breakout, stock markets had a flash crash, on news that Deutsche bank could be failing.
On one hand, the OPEC talk is a real thing, not to be ignored, even though it sounds anemic, to cap production just slightly below where it is right now.
But the fact that any agreement was made, for the first time in 2 years, bridging political gaps that had before seemed too big, suggests other gaps might be bridged, like a trans-OPEC agreement.
However, the oil breakout stalled, when markets turned sharply down on the Deutsche Bank news. W might Deutsche Bank matter?
While the Deutsche Bank market cap is in the $16 billion range (with volatile fluctuations), it has derivatives exposure in the $ trillions. People were afraid it was a Lehman like situation.
With world-wide derivatives in the neighborhood of $1 quadrillion, 4x or more all the money in the world, it’s a murky or mysterious aspect of the economy few, if any, understand well. If world markets were to suddenly collapse, a likely trigger could well be a derivatives meltdown.
Anyway, the next day, 9-30, the market totally recovered. Apparently Deutsche Bank was considered irrelevant, for now.
Crude prices spent the day balancing above the thick purple breakout level, establishing value above. A bullish posture.
This is a confirmation of the up bias, and barring any catastrophic news, my prediction from earlier blogs, targeting $55-60, remains intact.
The expected action next week would be:
Hypothesis 1: Oil gaps up Sunday might, Monday follows through with an up trend.
Hypo 2: price pulls back, to gather for a run higher.
The second scenario is valid anywhere all the way back to the Scene of the Crime, SOC…the level where OPEC made the announcement, around $45.50.
A pullback to that level would be the well-known breakout/retest/continuation phenomena. This second scenario would provide better entries, and a stronger base for a more sustained run up. (Whereas gaps typically fill at some point.)