A rare "gap" for WTI on Israel's attack on Iran
TCU Ralph Lowe Energy Institute
TCU Energy Institute prepares and develops tomorrow's leaders for an economical, sustainable and reliable energy future.
The geopolitical risk factor for oil markets disappeared on Saturday after Israel's aerial assault on Iran spared their oil and nuclear facilities, as promised. The resultant market moves when NYMEX trading resumed Sunday evening was immediate selling which resulted in a rarely seen "gap" in the technical charts. In this case, WTI prices "gapped down" on the Open. That is, the first transactions were at a price lower than the Low from Friday's trading.
Gaps are rare given the hours that the NYMEX Globex trading encompasses, Sunday at 6:00 pm Eastern Time through Friday at 2:30 pm Eastern Time. However, when an event of a key fundamental nature happens while the market is closed, traders are anxious to take new positions. This built-up tension can magnify the impact of any price movement, up or down.
Technical analysis does not "like" gaps much as nature abhors a vacuum and closes it instantaneously (thunder). As such, the market will normally close the gap before continuing with the current trend. Additionally, prices today have breached the Lower-Bollinger Band, a measure of 2-Standard Deviations from the Mean. The "too far, too fast" rule comes into play as this is a "Buy" signal and should lead to an eventual move higher to close the gap.
Tom