Crude oil is another commodity which has an interesting technical picture and certainly one for volume aficionados as there is a clear anomaly which has already delivered for those in the know. And it is the daily candle of Thursday last week to which the eye is drawn for two reasons. First its relationship with volume, and second the volatility indicator which was triggered as a result of the wide spread price action.
If we start with the price action, the fall on the day was the biggest on the chart, and therefore by extension, we should expect volume to reflect this fact, if it is a genuine move and one in which the big operators are participating. What is immediately clear is this is not the case. Whilst the volume is above average there are other down candles of lesser spread, but with higher volume, suggesting this is likely to be a trapping move and not a genuine one. In other words, the price is being marked down without participation and therefore likely to reverse soon after.
This fact was confirmed by the second event, the trigger of the volatility indicator which sends a clear signal of price moving outside the average true range for the instrument, and as such the likelihood of congestion to follow or a full blown reversal. The reason for this is not hard to appreciate. Fast-moving markets trigger FOMO, the fear of missing out, and more so for those nervous traders who have been waiting on the sidelines who finally take courage and enter, more often near the bottom ( or top) of such moves and who are then trapped in weak positions. This is the power of this indicator which can reveal future market direction with oil trading gapped up on Friday and inside the spread of the candle as expected. A solid reversal based on two different signals.