Quick post - couple of charts here from our Global Cross Asset Market Monitor (weekly markets monitor that goes to clients). Key point: WTI crude oil prices are breaking down. On the technicals, we've got a double top here and a downside break of the 200-day moving average, which leaves the logical support level down around 40-50. So there could be as much as another 20% to the downside as this move unfolds. I covered the downside risks to crude oil in a recent edition of the Weekly Macro Themes report where I highlighted the mix of futures positioning, US dollar strength, negative seasonality, and supply growth as headwinds - as well as the bearish action in energy stocks - with our earnings sentiment tracker flagging warning signals.
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BONUS CHART: the bonus chart is crude oil implied volatility (think of this as the VIX for oil). While the oil price is breaking down, crude oil volatility is breaking out - this is very much consistent with the move in the oil price and is the kind of thing you see at the start of a major move (a spike from relatively low levels). At some point this spike in crude oil volatility may become a contrarian buying signal, but not yet!
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The price action in crude oil is really important, not just for oil traders or those who allocate to commodities, but because the oil price has an impact on a few different assets e.g. S&P500, US HY credit, breakevens, and treasuries. Indeed, if oil falls far enough and fast enough it could be a catalyst to further risk-off price action in US asset markets. Watch this space!!
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