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Crude Oil (WTI)

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Brent Crude made 3 attempts to breakout through the upper channel line into a rally (third time's a charm!).  After 2 fakeouts we look to have had a proper, if not altogether convincing, breakout.  The set up is in the form of a 1-2 (brown labels) within a 1-2 (Green) with that second wave 2 currently in play.  I am anticipating a completion around about the channel line retest, which is coincident with an area of support that also runs through the top of the recent significant gap, now closed (Gaps are important for support/resistance zones).  The Wave 1 (brown) top was a higher high.  Having now had a higher low (2 Green) and a higher high (1 Brown) if we get another higher low at 2 Brown and strong rally away that should be a wave 3 of 3 of a wave A (Daily chart).  Once we get a break of overhead resistance above wave 1 Brown) then I will be looking for the Wave A completion to bring up a drop in Wave B before a final Wave C to complete the counter trend rally and after than a long drop.

For me it is less important to find a trade on this move (counter trends are challenging to trade because of volatile whip-lashing) but to see if it sketches out according to my road map because if it does this will prove to me that a big drop is on the cards and that is the better trade opportunity, especially while there is so much potential in Stocks Shorts at present.

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Having retested the Daily chart upper channel-line and rejected back into a rally Brent is now poised for a significant move in my assessment.

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Brent has bounced off the daily chart channel-line and now put in a small 1-2 retrace, followed by another smaller 1-2 and then rallied away this morning.  This is fully in line with my large scale retrace projection (currently targeting circa 7,200 but let's see how price action progresses on that).  There was PMD at wave 2 (brown) turn with other oscillators supporting.  Last nights opening gap was closed this morning so the prognosis is set fair for a continued rally phase (wave 3 or 3 - the strongest).  Note however that this is overall (in my opinion) a counter trend rally and therefore will have in all likelihood an A-B-C form (large scale) but if it becomes a complex retrace there there will be a lot of whiplash so caution trading it is required.  We also await the EIA data at 15.30 today.

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I am fully committed to stock indices Shorts at present but it pays to keep an eye on other markets and keep reassessing the overall economic condition.  I remain patiently waiting for a significant retrace on Oil before I would consider a Short as the risk of getting caught in a Bear trap after such a strong Bearish move is too high and anyway stocks offer a better probability Shorting opportunity at present.

I have adjusted my Big picture Weekly chart set up to a narrowing channel (AKA Triangle) that was broken out of during the current Bear move.  I am looking for a relief rally in retrace form to retest this break out zone (Fib 62%) but would also be watching price action as any retrace approached the Fib 50% area.

But have we even seen an end to the Bearish move?  On the Daily chart we have seen a bounce off key support after a fakeout and then a breakout of the upper channel line.  This after a classic 1-5 EWT wave count down.  On the 4 Hour chart I can see the potential Wave 1 turn (Pink), with PMD, followed by a series of 1-2 retraces inside a Triangle formation, known as a coiling triangle.  A breakout of this Triangle either way would typically be fast and strong.  I am leaning to this breakout being a rally because of the long term assessment (above) plus the fact that this coiling price action has posted a higher high and 2 higher lows AND everyone is Bearish.

If I were to trade this market short term it would be to go Long on a breakout of the Triangle formation but watch out for a Daily Chart A-B (i.e. a strong bearish retrace, maybe to retest the breakout zone) before a final wave C rally.  Because of this potential whiplash I will either not trade until a Short set up reveals itself of swing trade the A-B, more likely the former.

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Sometimes overkill analysis can convince one not to trade an opportunity which presents itself right in front of their eyes.

I am not short either but I wish I was. It was a lovely short trade. The chart fully supports this and has done since the middle of September 2018. That is three months of analysis, charts, more analysis and more charts. I ask the question in a polite way so please do not take it personally or with any offence but how effective is such analysis if it does not enable one to trade such a profitable opportunity in both US Crude and Brent Crude on the short side? Every time a reason has been given as to why one would not short Oil it has continued to go down. The previous 'five' pages on this thread demonstrate this nicely. @Caseynotes, you tend to write logical and thoughtful material. Also you are not scared to voice your thoughts. What are your thoughts on this?

All the analysis on this thread has not led to a short trade which I find fascinating. All the time and energy spent yet no profitable trade on oil to show for it. Yes there may be traders within the IG Community who are shorting Oil and making big profits but may not wish to disclose but none have come forward on asking so far. 

I must admit I do not understand how effective any analysis with the use of charts can be that gives the reason not to trade the asset which is trending strongly? I just do not understand this unless the charts and analysis are not being interpreted effectively by those conducing the analysis. Different traders can interpret the same indicators differently. This is what sets traders apart. It is how they react and make decisions on such indicators. This makes the difference. 

This is not a criticism as it may be that I do not understand the high level of analysis and charting or the trading strategies are above my intellect. If so then please accept my apologies. I always think that making trading more complex and coming up with more complex charts does not guarantee or improve the chances of identifying profitable trades or actually trading and making bigger profits.

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@TrendFollower, yes good points, there is a difference between the technical and the trading aspect, price is really just looking for levels where contracts can be exchanged, if not it moves on. All you are looking for is a move and then a simple methodology to trigger a trade that over a number of trades has proved itself to be reliable and profitable. Adding multiple levels of TA risks skewering probability because you are stacking multiple layers of probability onto the problem.  

WTI has managed to get itself back in the box on this weekly chart but still seems to be looking for support and if not finding it at the current recent low 4947 may well look below to the 45s or even the 42s. But the bulk of the run would appear to be over and we are likely to see oil oscillating about the 50 for the foreseeable future imo.

 

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@elle, you are absolutely right. 😀

I personally think if you added some rationale and thinking along with your charts then they would be much more helpful and meaningful. It would certainly enhance the value of your posts. There are times when you may be onto something but it is unclear or vague. Just a thought. 👍🏾

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Haha   "could do better then"  :) .                  I'll see what I can do

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@elle,

Thank you for firstly taking my comments positively and not reacting negatively. It is very much appreciated.

I really am kicking myself for not shorting Oil. This was an error on my part. One could still initiate a short now but the risk would be higher on the trade as I feel that the bulk of the move has already materialised and we are approaching the bottom which I think will be in the $40 - $45 range on US Crude. I think Brent may have further to fall and could easily fall over $10 more from its current position. The problem is to take advantage one would need to increase the amount of leverage and if there was a counter trend reversal then it could destroy your trade very quickly and very viciously. I would not suggest this from a risk/reward perspective from current prices.

Now speaking of 'Counter Trend Reversals' there could be an opportunity for those who trade using such strategies to consider the possibility of this but I would not want to trade until the price action confirms a 'Counter Trend Reversal'. I suppose it is 'Swing Trading' more or less. As someone who uses 'Trend Following' principles I would wait for the trend reversal and then at least a rise above its 20 day moving average before even monitoring or considering a 'long' trade on Oil. 

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@cryptotrader,

Some words with your posts would be useful or helpful to the IG Community, especially beginners or newer traders who do not have much experience. 

Charts can be interpreted differently by different traders so your views and opinions would be nice. 

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As reported by the FT: “...when you strip away all the geopolitical noise that roiled oil prices this year — from Iran sanctions and waivers, Venezuela’s meltdown, US president Donald Trump’s tweets and Saudi Arabia’s involvement in the killing of Jamal Khashoggi — boils down to one simple point: the US shale juggernaut is back to travelling at such a pace that it is flattening all other developments in its path.”

this is the one we want to watch folks. Those pipelines coming on in 2019 could be sognificant. 

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So Brent took another leg down, luckily for me I did not commit to a counter trend Long previously, preferring to wait for the next Short opportunity.  However I continue to monitor this market and have have just noticed a strong bounce off Weekly chart support, which IF it concludes the day as is or better will show a pin bar reversal (obviously not yet done).  The current rally put in a small 1-2 and then rallied again.  There is very strong PMD on all charts.  The safer bet is to wait for this to play out and a breakout of the channel (note I have adjusted my channel definition to contain the recent rally to 7 Dec).

I have taken a spec Long close to the pin bar bottom and rally on the small 1-2 retrace and rally.  My exposure is very small with a stop just below the pin bar low.  Let's see what happens next...

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Oil did indeed continue down into the 45s and held up at the blue line (45656) from my post on Tuesday, there is no real reason either technical or fundamental why there should be a bounce from here. The question is will the slide continue to the next level down at 42061.

@PandaFace, the COT data shows the continued slow steady unwinding of net longs by large speculators since the start of the year but I would expect that to level off in the near future.

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Surely if the question is will it continue the slide then the obverse of that question is will it bounce?  As for the Techncials there is every reason we will see a rally in Oil, the question I am posing myself is how to see when it happens early enough to profit.  Not that is that big a deal for me, it is more relevant to see where any significant counter trend rally might end to kick off the next leg down, which could be a very good Short.  That said, Oil is a funny 'ol market, dominated by a small number of big players (the Commercials) so if there is one market that might never look back it is Oil.  The Commercials are the smart money in the Oil business, no one knows it like the Exxons, Shells and there ilk and OPEC of course.  Best to trade with the Commercials on this market for me.  The Non Commercials (Financials) were net Long (Futures & Options) in early Oct just as the market turned, which is fairly typical as a contrarian signal.  Now they are back to their usual position of net Short but that has begun to unwind a bit (Rally on the horizon?).  As to the Fundamentals, well I freely admit I don't know enough about Oil, which is why I rarely trade it, but overall it seems to me that the "oil wars" are not done yet and with such a heavy weight player as OPEC being a fractious organisation, with the Shale producers angle and with the overriding push to develop alternatives to Oil perhaps the general pressure is downward.  Then again, what do I know?  The Market will reveal all in due course as usual.

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@Caseynotes,

I think it will slide down to the next level down. 

@Mercury,

15 minutes ago, Mercury said:

As for the Techncials there is every reason we will see a rally in Oil, the question I am posing myself is how to see when it happens early enough to profit. 

So you want to see any potential rally in oil early enough to profit from it yet you witnessed the rally downwards and did not short oil to profit from it? I do not understand your trading philosophy. I stated earlier on in this thread on several occasions about shorting oil and you came up with reasons why you would not short oil so this comment does not make sense to me. 

You then state the following:

18 minutes ago, Mercury said:

Not that is that big a deal for me, it is more relevant to see where any significant counter trend rally might end to kick off the next leg down, which could be a very good Short. 

You think the next counter trend rally could be a very good short. It has just been a fantastic short that we have witnessed all the way down to where it is now. Yes, I did not short oil but that is a flaw in myself and I am happy to admit and accept that. Why was the recent enormous downward move in oil not a good short?

Effective trading is all about trading the right opportunities at the right time. It is all about identifying the most profitable trading opportunities at a given time and trading the most profitable trading opportunities regardless of asset class.

I was not effective as I could have been. Shorting oil would certainly be included in the above (bold). My personal view is that any next leg downwards from here will not be as profitable as the downward move we have seen to get to this price point. 

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Price continuation is a question of momentum, price like everything else will continue on until acted upon by a new force, there may be forces slowing the momentum in which case price will stop and the chart will go sideways but it takes something bigger to reverse it and that will be new news. 

The chart of commercials and large speculators is always inverse because commercials supply the contracts for the large speculators, they are both smart money. Large speculators are registered players most of whom will work for institutions (commercials).

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That's what you believe @Caseynotes, I understand that and am not trying to dissuade you of that belief, especially as I am sure breaking news is vital to day trading as it does seem to produce short term movements.  However I believe that the markets make the news and not the other way around.  MSM gets the message last, in fact I use MSM headlines as a contrarian indicator.  The thing that moves the market is sentiment.  For sure news does act on that sentiment but it is a lot more complex that Donald Trumps twittering.  It is a series of news, worlds events, policy changes, prices levels, risk/reward attitudes, Fear vs Greed (which acts in strange and unpredictable ways - hence bubbles and manias).  I choose to ignore daily wittering and focus on the long term building pictures, using tried and tested tools to map the sentiment drivers of the markets.  I find this clears the noise out of my analysis and helps me see the woods for the trees.  For example there was no news that triggered the Oct market tops in stocks, although plenty in the MSM scrambled around for reasons.  So what?  It doesn't matter, there was no bell tolling, no announcement of the end of the trend, there never is.

I am not saying you are wrong in following news in your trading but you seem intent on proving that I am wrong or that you or right or both.  Surely it matters more whether trading is successful?  Anyway that's all I'm going to say on this subject the market will show us is due course.  As for me, on Oil, I would not take along term short at this point because the risk of a retrace rally is too high.  I would only consider a Short if the market retraces to a good level and only then if there were no better trades available.  If the marker does retrace to a good level for a turn back down then it will fit my long term analysis road map and that signals a very long drop.

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@Mercury,

No, I am not short Oil now. I have recently gone short the US 500, Natural Gas and long Gold and Silver. I found these are a lot lower margin requirements when taking leverage into consideration. Also I think I have got in earlier on all four of those trades than going into Oil now. Having said that it maybe as @Caseynotes has eluded or the inference that I have taken that Oil will continue to go down until something happens to stop it doing so. The retrace rally is possible so one must be aware of that and take it into consideration which is why Oil now becomes a tricky short from a risk perspective. 

I am honest enough to admit my error in not shorting oil. I think at times the IG Community is like 'market noise'. I started reading your ( @Mercury ) analysis on Oil and I should have just ignored it. Had I not read this Oil thread then I think on balance of probability I would have most probably shorted it but I will never know for sure.

 

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OK @TrendFollowerso you are blaming my posts for your error, which is why you are so negative, not to say angry.  Although at the beginning you were encouraging the community to get Short Oil while not getting Short yourself because you were focused on a Crypto Long...  Fair enough but posts on this, and any forum, are an invitation for a discussion and not a recommendation nor should they be seen as an opportunity to try and win an argument nor to try and big ones own system up vs someone else's, which is what you have consistently done with your technical analysis bashing.  You clearly do not know sufficiently enough about technical analysis to denigrate it, or maybe you have tried it in the past and couldn't make it work.  It is fine to have an opinion but not to turn that into trolling behaviour.  You have forgotten the reason I first posted on this thread.  I, among others, was asked by @PandaFacefor my opinion on whether he should go long, this was back in October I think.  I said I though the market had turned bearish and while I couldn't rule out another higher higher retrace I wouldn't go Long.  That at least turned out to be good advice.  I also stated that I don't really trade Oil and later that I was focused on Stock indices Shorts and precious metals Longs as a much better opportunity that Oil, which it seems you have belated joined me on...

As we have seen from the last Oil Bear this market can just run and run.  If you believe it will do so get Short.  For me it does not meet my criteria for a high probability low risk trade.  There is an end to it, I will not post on Oil again unless or until I see that retrace, but probably not even then.

 

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