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Crude Oil (WTI)

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Big level coming up, expecting price to thrust through it or reject it.

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lovely test of that level. Lower timeframe chart shows a classis "spike & ledge" pattern, with the ledge holding above the "50%" level (nice squeeze)

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Those that know me will appreciate that I am more 'words' than charts. The charts are there for all of us to see. Some of us will interpret the charts differently depending on our timeframes. 

To me the long term trend upwards is still in tact for now.

I think a good discussion to support and supplement the charts would be on whether anyone would enter a long position on Crude WTI right now? It is trading below its 20, 50 and 100 day moving averages - well just about!

I will stick my head out and say no as the trend is appearing to get weaker compared to the June 2017 to May 2018 time period. So from a long term perspective I would not enter this trade.

From a short to medium term perspective there may still be another leg upwards after this drop so there could be an opportunity of a short term trend reversal, so a short term trade to take advantage of the volatility in WTI may be a possible trade. Buying on dips during a long term trend can be quite an effective strategy. Even adding to existing positions during such dips can really ramp up profits when the asset is trending upwards. 

If you look at the chart then WTI has been trending upwards over a year now so it would have been an effective and possibly still is an effective long term trade.

 

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yep, downtrend continuing :)

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What are people’s thoughts after last weeks blood bath? Black gold is acting more like diesel sinking to the bottom of the distillate tower rather than jet fuel rallying to the top! 

It’s worth remembering that US sanctions on Iran’s oil exports will resume on November 4 following Trump’s withdrawal from a nuclear accord. Prices in or not? Hard to tell. 

Ideally id like to see a greater pull back before we get that rally really going, but we are in a channel of support right now on the upward trend. 

I’d be tempted to think about a position long on this now. Maybe with a small take profit at 70 usd and a trailing stop to hopefully take it to the top of the daily candlestick channel. Thoughts @elle and @TrendFollower do you think this trend has legs? Also calling in the regulars - @cryptotrader @Caseynotes @Mercury Do any of you stay on top of oil or is it not your thing? I know each of you have different methods (E Wave / technical / fundamental) so it would be interesting to hear your thoughts. Maybe this should be something we do more? Tag each other on a trade idea and take a couple minutes to confirm/reject the trade based on our own methods? Feel free to tag me in a couple and I’ll try and do my own input (broad fundamental). 

Have a good week all and may the odds be in your favour on what could be a week of reversals (or a greater sell off pushing us closer to that 20% pull back!) 

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Just a quick reply @PandaFace, the reports continue that the Saudis are pumping for dear life following Trump's warning about high oil prices some weeks ago. Saudi output at maximum and looking to remain so for the near term.

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short term range - testing either side -

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57 minutes ago, Caseynotes said:

Just a quick reply @PandaFace, the reports continue that the Saudis are pumping for dear life following Trump's warning about high oil prices some weeks ago. Saudi output at maximum and looking to remain so for the near term.

You’re not wrong. Does anyone know how quickly this pulls into data? On a weekly basis ie will we see stuff in the numbers on Wednesday and Thursday? 

Middle gorund it seems like @elle thanks but tough to make a call. Maybe bid down the chart...

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@PandaFace, I'm happy to be tagged as you suggest and will try to offer whatever opinion etc. I have, according to my own method (as always please treat any such carefully and always make your own decisions based on your own method - i.e. we should not blame others, or the market, for our own bad decisions...).  On this particular market, I have traded it in the past but am not active in it now due to inherent uncertainty, high margin requirement and poor risk/return equation vs other markets.  Also I tend to look at Brent rather than WTI as a better international view point rather than the US focused WTI but largely they align I think.

I have to go all the way out to the Monthly/Weekly charts to show the inherent uncertainty point.  The macro set up is as follows in my view:

  1. The market topped in July 2008 and then got hit by the Credit Crunch related massive drop to Feb 2009, just as "Peak Oil" mania stories were rife in the mass media (note this is different to other commodities in pattern and relation to the Credit Crunch so Oil is not behaving like other commodities, with respect to stocks and bonds.  In fact I don't think you can make broad statements about commodities in general and have to look at each market separately).  Then this market made another strong rally (topped out in 2011/2012 - that one was more aligned to other commodities!)  and then descended is a strong bear market.  In Elliot Wave terms this looks like a large A-B-C retrace move but the question is whether the C has been posted yet or not?
  2. There isn't enough historic data in IG for me to analyse on these charts but from other sources (TradingEconomics.com in this case) I can draw a rough average historic low or support line around about 1,000 level.  Using this as the base I can see that the 2016 low hit about the Fib 88% level before the current rally.  This means that it could easily have been a Wave C conclusion of the retrace and the move up now is a large Wave 1 of a long term rally in 1-5 form - i.e. we may see new all time highs for Oil in the future).  Such a set up would fit with the Fundamentals scenario of peak oil production and therefore dwindling supply of a still critical energy source.  Not to mention conflict over oil in the future - scary thoughts!  The rally from 2016 could be in a self contained 1-5 to recent highs, thus we would expect a significant retrace (maybe 50% or more) before further rally, IF the market has topped out already.
  3. The alternative scenario is based on the fundamentals view point that Oil will be swiftly replaced by alternative energy, indeed already is being despite The Donald's best efforts, and is in a death spiral, of which the current rally is the last gasp.  I would not expect Oil to disappear completely as there are plenty of industrial used over and above energy production, so it doesn't go to zero (as Bitcoin et al probably will...).  Therefore under this scenario the massive A-B-C retrace has not yet completed and will not do so until it reaches the historic average support around 1,000 (hard to be at all accurate on this level!).  The current rally is a Flag (Wave 3-4 retrace an will breakdown through the lower line to a fast bearish drop to that support level, maybe aligned to a stocks crash like in 2009.

Looking at the Daily and 4 Hourly chart then, I can see a possible market top just short of the Monthly Fib 50% (recent highs) OR another leg up to hit that resistance more firmly, maybe coincidental with Stocks tops, if they haven't already happened...  In any event I would expect this bearish move to continue down to the 7,000 area support level and coincident with the apex of the recent Triangle (the 3-4 retrace of the previous rally - a common turning point).  Then we should see a 1-2 retrace back up to resistance levels before a stronger drop (or fresh highs and then a drop).  This works for either of the big macro set ups.  The only thing that might happen yet is a final leg up as mentioned and the best trigger of this is a break of the tram-line after a reasonable Support level turn.

Trading strategy:

  • I find it very hard to assess probabilities on this market, which is dominated by a few very large players.  Too your point Pandaface, it is impossible to know what is really priced in, which is why I use technical analysis.  But this market often defies analysis methods and the set ups are such that I can't see which way this is going to play out yet.
  • I do not like trading this market Long just now as I see very little upside and prefer to wait for good quality Shorts to present themselves.  There are just too many unknowns and the short term risk vs benefit isn't there for me, there are much better odds elsewhere, as we are perhaps seeing as I write this - USD bearishness, Stocks rally...
  • Once we seen a decent Short set up then even in the "Peak Oil" scenario there should be 4/5000 points for a retrace move.  After than we can reassess which macro scenario might play out.

Look forward to feedback on this and more tagging for discussions, this is the whole point of the Forum after all.

Brent-Monthly_261018.thumb.png.1923bdec56aa7f95932d35f5e870c5cb.png157380593_TradingEcomonicsBrenthistorical.png.77043b33867e99cccceadb7f89a11d6f.pngBrent-Daily_261018.thumb.png.a15c13eaef621495e931e8f81bbd1a75.pngBrent-4-hours_291018.thumb.png.92cad2568bd8570610d93634c6952e3f.png

Brent-4-hours_291018.png

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interesting view on the bearish side for oil there @Mercury and I must admit not one which I had looked at. In my head I was looking for the mean reversal being in our favour and therefore a chance to go long! but looking at those channels they do seem very well supported.

For my input, whilst brief, I would say I'm unsure (I know this helps diddly squat), but would be holding off the trade until there is a more sure fire understanding of direction. We're certainly in uncertainty ... lol

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Meant to post this earlier in relation to @PandaFace's query. From Ole Hansen's commodities update yesterday.

Leveraged funds have been exiting oil longs for 4 straight weeks now, so starting around when Trump was signalling his displeasure at the continuing high price of oil.

 image.thumb.png.2000ecc69187ed6e353a53178e8d67a0.png

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But it doesn't mean diddly @cryptotrader, if we are not sure we should not trade, in fact this would be pure gambling.  Even when we are more sure we get it wrong most of the time (well I do...).  So if the people on this forum, with all their different methods all say they are not sure then there is not trading opportunity, surely?

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1 hour ago, Mercury said:

But it doesn't mean diddly @cryptotrader, if we are not sure we should not trade, in fact this would be pure gambling.  Even when we are more sure we get it wrong most of the time (well I do...).  So if the people on this forum, with all their different methods all say they are not sure then there is not trading opportunity, surely?

very fair point - maybe it is just the time to sit on hands and see what plays out.

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Interesting @Caseynotes As a contrarian I like to trade with the commercials rather than the financials, especially the hedge funds.  This would suggest to me that we should see a rally in Oil soon. 

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several touches, see if it holds..................................

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Thanks guys and especially @Mercury that’s a pretty solid perspective and good trade ideas, caseynotes for those charts on lev positions, and Elle on tech analysis. 

Today has just shown real indecision in oil so it’s tough to pick a direction. I’m this instance I think it’s hands off until there is a direction. 

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@PandaFace,

For me the price action has a bias towards the negative side at the moment on both Oil - US Crude and Oil Brent Crude. Therefore at this moment in time I personally would not open a long trade on either. Please remember that these are my personal views and it does not necessarily mean I am right. Others may have more efficient strategies than me.

It is clear from the chart that I have posted (below) from IG that US Crude is trading below it's 20, 50, 100 and 200 day moving averages. For me if anything this is a signal to open a short position. Yes there can be a trend reversal but here one could look at the straight of the trend and volume to assist in any decision making. 

569755806_Oil-USCrude_20181029_19_25.thumb.png.97e40f2bd78e4e6d03d0e70795ec5cb4.png

Why trade against the trend?

There is no clear trend reversal that I can see that would aid me in making the decision to go long at this moment in time.

One must remember that any pullback in the US dollar will support Oil prices. I was reading an interesting article (can't remember which) where it discussed 'unsystematic risk' and 'systematic risk' for oil traders. One must not forget that there was reported profit taking in oil when there was market uncertainty on whether there would be supply shortages. There were sanctions against Iran. In case if anyone is wondering what 'systematic risk' is then it is also known as 'market risk'.

In my opinion, Hedge Funds, play an important role in the price action of Oil. When Hedge Funds start liquidating their positions in tandem then one normally witnesses this through the price action. There is also an element of 'herd theory' in oil and when one large Hedge Fund goes long oil, several others tend to follow thus amplifying the price action. Another important factor are margin calls that Hedge Funds face in equities which can lead to them needing to liquidate their positions in oil to raise cash. 

The long term trend in both oils seems to be upwards. However, short term there seems to be quite a few who are unwinding their positions hence the current price behaviour. 

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interesting that you say you wouldn't trade against the trend, however the trend is entirely dependant on the time frame you're looking at. Its a tough one, and why the markets work so well... everyone is looking at different things.

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One could possibly consider investing in oil with a long term view. Trading for me is more shorter term in timeframe and hence why I would not go long right now in terms of trading.

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Trading is trading in whatever time frame for me @TrendFollower.  Long term swing traders look for fewer bigger better (i.e. more points) trades where as short term or day traders look for quick hits between levels and are typically higher freq traders.  This is why we might disagree and yet still both be right.  It is important to know what method and trading style a trader has if you want to have a conversation with them and I am always keen to hear what short term traders have to say as my entries are always on the short term time-frames (usually 1 hour charts) but backed by longer terms set ups.

For me the key differences between trading and investing are:

  1. Investing is very much buy only, not short - one way traffic and obviously useless in a Bear market (despite professionals selling Bear friendly funds etc...).  Also the notion of averaging out (drip feeding funds) is bogus.  The only maxim that works for investing is buy low, sell high.
  2.  Investing is about buy and hold plus add to gains with things line divis etc.  Quality of what you buy counts, penny shares are highly speculative and amount to trading in my view.
  3. Retail trading is often, but not exclusively, on margin and really is betting on market direction.  Investing is too in reality but with the basis of only risking what you have put in and owning shares in a decent company will still pay divis even if under water.
  4. Funny enough I use the same analytical techniques for investing as I do for trading, which has worked well for me.

In terms of trend @247trader I agree and disagree but again it depends on what you are seeking to achieve.  When I talk about trends I am only talking about long term established trends and retraces against these trends, which would reverse or change the trend.  My view is that it is far better, safer, more profitable to trade with the long term trend, even for short term trading.  On Oil I cannot tell which way the long term trend is heading at present, hence the 2 major scenarios.  Until I can tell I will not trade this market.  The whole point of technical analysis for me is to change the odds of any trade from a 50/50 coin toss to something more in my favour.  A huge part of that for me is being confident of the long term trend.  Alas at present many, if not all, markets are in pivotal moments where the LT trend may be changing and has been for some time on some of them.  This is very hard trading conditions.  Oft times it is better to do nothing.  Long term successful retail traders have mastered this, I wish I could say I have...

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As a case in point re trends short and long term, my weekly/Daily chart (see above) shows medium/long term trend up but this could be a retrace and hence the true LT trend is still down.  The short term trend (for me 4 or 1 hour charts - I don't look lower than this except to zoom in on Elliot Wave counts for small retrace moves) is clearly down and the channel lines on the 1 hour chart are holding nicely.  This is still pointing to a test of the 7,000 support zone (albeit with a fer stops along the way).  Breakout of the upper trend line required for a Long, which may go for a new high at the Weekly Fib 50% or could just retrace the whole recent move down to turn back into a bear market.  To many could be and if for me right now but maybe a good turn at 7,000 ish could work...

Brent-1-hour_301018.thumb.png.8971bf42dbb52ffb1f6b71c31709d0c3.png

 

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channel break - blue zone = support

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Your blue support looks like it roughly equates to my Brent 7,000 support @elle but I don't really see the same channel.  If your channel is correct then this market has probably topped and any retrace off support would retest and fail at the channel line (accepting a hard test through) rather than a stronger retrace.  At present I judge that to be unlikely on Brent so I agree the support but not the channel or else I would be looking to short the market.

 

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