Brent Crude rally ends, time for the big Bear!

[WallStFoxy]

20 hours ago, Mercury said:

Possible wave B concluded with a hit and rejection on the Fib 62% retest of the previous channel breakout zone on NMD.  A break of the smaller Triangle encompassing the current rally would confirm but the strength of the rejection is encouraging for another bearish leg to a wave 2 conclusion.

@Mercury

I love your Elliot waves they sound so technical but I see strong support @ $63.65 and support from the 30dma and vector support. It looks to me like the bears have tried to push oil back into a downward trajectory and failed, as long as $63.65 holds this continues to be Bullish for me. 👿 

[Mercury]

@Foxy, I see your 6365 as ST support only and for sure it must be broken for my bearish scenario to hold but in larger time frames 6365 doesn't seem to be an area of particular importance, having being broken swiftly to the downside last Tuesday and similarly to the upside last Friday.  To me this means a break down again would be equally swift and this would be consistent with my bearish thesis as the rejection from a Flag or Pennant would normally be swift.  Overhead resistance of 6500 is also key, a break above this and your more bullish stance will prove right.  There are many technical indicators that I see leading me to the more bearish scenario short term but none are sure fire and wave Bs are tricky customers.  I assume your 30dma is on the 1H chart?  Personally only use MA, sparingly, and only on the Daily or longer time frame charts so no comment as to that particular point.

Prognosis then is either for a break above that 6500 zone and the on up, suggesting that where I have my Wave A is really the wave B OR the bearish scenario I have outlined previously and above triggers with a break through that 6365 support zone.  Ya pays yer money and all that...

[Mercury]

@Foxy, looks like you were right so far.  The Pennant I though I had has morphed into a channel.  Wave Bs are tricky beasts (if this is a wave B) but price is hitting some resistance at the top of the channel, coinciding with the Fib 76/78%.  If this resistance holds and price turns back down this could mark the wave B (brown) of an A-B-C form larger wave B (green), which would then set up a strong rally, perhaps to close the gap above (circa 6740) or a bit more.

The price action in this rally so far doesn't really conform to a larger wave C rally, not a motive rally up to fresh highs.  Rather it seems more like a consolidation retrace, but this is Oil so you never really know where you stand...  Also there is a price gap on last nights open, which normally should be filled quickly.

[WallStFoxy]

@Mercury

In the longer term I see resistance above @ $66.65 that could be pivotal, you can see the support @ $63.65 looks more significant on the Daily chart. 👿

[Mercury]

Apologies @Foxy for not responding to your comment, I have been busy elsewhere and focused on other markets while Oil remained in the doldrums and undecided on next moves.

Regarding your comment on support at $63 I think the support zone is actually much wider than that, running between circa 5860, where there is an unclosed gap, and 6460 perhaps.  Wherever you draw your boundaries it seems like a large zone to me and one easily transited by price as we have seen.

In terms of the price action, it looks like an A-B (green) is done and now we may be into a wave C with the first 1-2 (brown) done.  I would like to see a break higher above 6500 to confirm this.  If confirmed and if we do get a clear 1-5 wave C then the unclosed gap above (around 6800) should be closed.  This is concurrent with the longer term Fib 50% and therefor presents a reasonable wave 2 ending point.  However the Fib 62% off the more recent highs is not far above this and at the top of my resistance zone is where wave C would equal wave A in length, a classic EWT relationship.  First gotta see a strong break higher through before we think about where it might turn.

 

[Guest biglivetrade]

Yesterday I have taken a buy call in crude oil at 3884 and exited from the call Today 9:10 am at 3935

Total Profit: 51

[WallStFoxy]

1 hour ago, Mercury said:

Regarding your comment on support at $63 I think the support zone is actually much wider than that, running between circa 5860, where there is an unclosed gap, and 6460 perhaps.  Wherever you draw your boundaries it seems like a large zone to me and one easily transited by price as we have seen.

@Mercury

I see support around $59 and both support and resistance in play at $63.50 but the overall set up looks bearish with ST resistance at $64.65. Until it breaks up of $64.65, I would expect the next leg down.

[Mercury]

A plausible scenario @Foxy, we could see a retrace down to 6200 before a stronger rally up to my medium term targets.  Obviously a break below the 6110 low negates this for now at least.  A rally above the recent high (6460) would be indicative for that stronger rally and a break through 6500 highly supportive.

Note I am not trading this right now and would not until I see those highs as there is too much of interest going on on stocks and FX (and maybe Gold soon) right now.

[WallStFoxy]

19 minutes ago, Mercury said:

Note I am not trading this right now and would not until I see those highs as there is too much of interest going on on stocks and FX (and maybe Gold soon) right now.

@Mercury

Me neither I am a Dow & Dax trader for now, but I like Oil when it gets into trend. Not to sure about Gold maybe if it ever gets back to what it was!! 👿 

[Mercury]

I never liked the Dax, very sharp moves.  I have always preferred US large Caps, and occasionally FTSE100.  With a 2.25% drop on the day I hope you are Short the Dax...

Regarding getting in on Trends, I think precious metals will be one of the biggest trends over the next few years but we should be getting a bearish retrace first.  Potential here far outstrips Oil for me.

[WallStFoxy]

30 minutes ago, Mercury said:

I never liked the Dax, very sharp moves.  I have always preferred US large Caps, and occasionally FTSE100.  With a 2.25% drop on the day I hope you are Short the Dax...

@Mercury

I would have been but the Dow & Dax have had my head in a mess for a few days so I shorted the FTSE as its been better behaved recently and I figured the pound would likely retrace a bit anyway to help out. I limit my risk to one trade at a time for now so its OK but not what it should have been. 👿

[Mercury]

While waiting for the Fed to do its thing I note Brent has gone above that 6500 level I was referring to.  It is edging back a little now but with no real conviction.  So far the retrace looks on but need it to rally again away from this 6500 zone to confirm.  The attached Real Vision links (part of their free content section) are very interesting with respect to what is going on in the Oil market.  The first one is mainly about why the SP500 is a Short opportunity but towards the end they segue into a discussion about Oil, makes for interesting fundamentals backdrop and basically saying the price is artificially high given the level of supply and intimates that fracking is making it much easier to get at the oil in the US (i.e. lower costs!).

The second clip is a summary of a much longer piece, if you can find the longer version it is well worth a watch.  Basically this is about energy revolutions.  The thesis is energy companies will be a big buy for the long term with things like green energy, electric cars and fracking playing their part.  This too refers to the hidden benefits of fracking for oil supply (as in there is a huge untapped resource available - chimes with the supply point made in the previous clip).  All amounts to long term Oil price pressure, not withstanding artificial price support.

https://www.realvision.com/tv/shows/trade-ideas/videos/playing-the-fed

https://www.realvision.com/tv/shows/tech-trends/videos/the-energy-industrys-five-major-transitions

[Guest biglivetrade]

Today I have taken a sell call in crude oil at 4011 and exited from the call 2:20 pm at 3987

Total Profit: 24

[dmedin]

Missed a cracking wee opportunity to go short on oil. 

[dmedin]

Apparently oil is both plunging and rebounding at the same time ... in the mad scramble to find something to write about, its journos are constantly contradicting themselves!

Edited August 2, 2019 by dmedin

[Mercury]

That's one reason I don't really pay too much attention to the MSM opinion pieces.  If the Journos were any good at calling the markets they wouldn't be Journos.  The people who really are good at calling it aren't gonna tell us for free.  The MSM reports what has happened (i.e. the news that the market movements made, rather than the other way around).  When the Brexit referendum result came out the MSM declared the markets didn't like the result because the FTSE100 was down.  Actually the FTSE was up on all measures except the day-to-day around the result and then carried on up following the established bullish trend.  But that doesn't make for a great headline and the job of the editors is to sell papers.

That is why I focus on the price action and technical analysis to make sense of it (to try to divine what is going on in the group behaviour).  However in this case, if you look at a 1H chart, you will see that the market on Oil did indeed plunge and rebound within a relatively short space of time.  It is a bit like a mirror image of Gold actually, I wonder if that is relevant (i.e. the underlying drivers are pushing oppositely for these 2 commodities).

The obvious scenario at play is that Oil is Bearish so get short, however I am not convinced on that one yet, need to see a lower low for that.  I think we may have seen a wave B turn into a rally back to the higher resistance levels around 6900-7000 maybe.  So Oil did plunge but the headline would make it seem like one should sell whereas the analytical suggest the opposite.  Old saying, which is not a myth, "buy weakness, sell strength".  Or buy low, sell high.

Trust yourself and your method, don't trust to MSM articles.

[Mercury]

While managing my Stocks shorts over the past few hectic days I have not had my eye on the ball of other markets but I had a alert placed for Brent Crude, which triggered today as the market looked to breakout of a series of parallel channels and a large support zone.  Such a set of channels is not that common and these have marked the wave breakouts almost perfectly.  The most recent was a gap breakout to the downside, that closed quickly with a failed retest and dropped away.  I went Short at this point and as the market looks to break lower, having closed that gap from Jan 2019, the 5000 support zone beckons.  If the retrace between 12 June and 11 July is indeed a 1-2 (blue) then the bearish move could run and run.  If it is an A-B then it should remain above the previous wave 1 (pink) low.  I see no rally potential in the techncials at this point.  A break past the 5000 level brings up white space for a long drop.

 

[Mercury]

Bearish breakout in progress?

[dmedin]

Cripes!  Brent is dropping like a brick!

Edited August 7, 2019 by dmedin

[Mercury]

Daily chart tells the tale.  After the drop through the first channel line and failed retest that sealed the wave 2 (pink) retrace top the market put in a smaller 1-2 (blue), which initially I thought was a wave A that would retrace higher to close the higher up gap.  That gap turned out to be a breakaway gap (one not closed in the move) and a series of 1-2s ensued.  The initial channel turned out to provide a series of parallel channels that almost perfectly signal each subsequent breakout right down to the most recent one that gaped and retested as it closed the gap and then fell away fast through the long term support.  Plenty of signals to get Short (I didn't catch them all alas and chickened out of one), despite people saying don't short Oil, I say short any market that is screaming short.  One of the best shorts of all time was Oil (actually 2 of them now in recent times).

If Oil is going to head much lower, as the set up suggests, it should test the 5000 area, and possible quite quickly now.  If we get a lower low vs the previous bear moves low (pink 1) there is no telling how low this could go, it could be a long one.  If it does not break the 5000 level then this could be an A-B-C that rockets back up to make new highs.  As the set up is significantly bearish now I will hold my Shorts at BE and seek to add on pull backs until the 5000 zone and then reassess.  This is the essence of swing trading.

[Mercury]

Looks like Brent has put in a failed retest of the recently broken support zone (now resistance).  The rally occurred off another support zone associated with the underside of the Fib 23% taken on the weekly chart between the all time high and the Jan 2016 low.  On the weekly chart there is also a support level between 5800-5400 that the bears will have to push through to continue the move.  If this failed retest is proven correct this could provide the bearish stimulus to push through.  Now that a potential 1-2 (pink and blue) are a wave 3 (or C perhaps) should ensue, which should show some strong bearish price action in the days to come.

[Mercury]

Oil makes a retrace retest of the breakout zone but ends the week with a bearish candle, that is the weekly candle is bearish and so are the final 2 4H candles.  While the daily for Friday is in the green there is a strong rejection pin bar on the candle, not quite a conclusive bearish pin bar, would need to have a red body, or no body, for that.  So another leg up on Monday to retest cannot be ruled out but overall the long term bearish outlook is intact.  I would take the view that any further rally legs offers an opportunity to get Short, as will a break below recent lows.

I think this will inexorably test 5000 and then we will see what happens, although for me, if Oil would rally strongly it would do so prior to the 5000 level, a test of 5000 will almost certainly lead to a break, given the price action we have been seeing since the last major top and turn in Oct 2018.  This view is based on Elloit Wave Theory applied to the price action and supported by other indicators, not some gut feeling (i.e. it is data based, as all technical traders are).

At the time of the Oct top, having missed this top, I was posting on an expected 1-2 retrace and got some stick for this.  Now that the 1-2 I was forecasting based on EWT did materialise (I note those tha gave me stick did not acknowledge this...) I took advantage and went Short.  In fact on my daily chart I annotate all my trading, leveraging EWT.  You can't catch every move and I missed the wave 2 (green) turn too as I was focused elsewhere and had too much fear of a rally up (that's psychology in action for you).  However I am now again Short and given where I took profits I am not much out vs Short and hold.  If anyone wants to see how EWT works just study my posts on Brent Crude since the Oct 2018 turn (on this and other threads), it is self evident.  For those who think it is all about hindsight, I was posting contemporaneously not in hindsight.  For those who can't be bothered to study the post, and study the masses of material out there, well you are not really interested so fine stop talking about it.

I will add to Shorts on further weakness and guard against sudden reversals on the basis that there is always another opportunity down the track.

[dmedin]

@Mercury

Brent crude just shot up above 6100 off the back of a comment from a Trump official about a mild easing of tariffs.

How can any amount of technical analysis provide an answer to such extreme volatility?

Markets are not random but they are not easily predictable either ... the question then is, what use is technical analysis if it can't be used to make profitable trades?

Zooming out to a day chart it still looks like it's heading down, and I just wonder if there is any point in short-term trading at all.

Edited August 13, 2019 by dmedin

[dmedin]

@Mercury

(As ****'s advocate...)

Studying your charts and EWT requires a lot of time because of the sophistication and complexity.  To put it plainly, is it worth the effort?  Does EWT really help to give an edge?  Or is it of mainly academic interest?

[Mercury]

@dmedin,

Regarding the rally in Oil, it was always a scenario possibility that Oil would react to the spike through support and rally back up to test previous support/resistance.  Many traders like to trade between these S/R levels on short term horizons.  I trade longer term so take a position and use stop protection to minimise or eliminate exposure to such reversals and then, if stopped out, look to go again on signals, unless price action calls into question my long term direction assessment.  This is exactly what happened in the case of oil.  So I didn't lose much and live to fight another day, you can't win them all.

Incidentally there is a very interesting interview with Mark Richie, one of the old traders featured in the Market Wizards book, first edition, don't think he is in the more recent updated version, on Real Vision.  It is a bit rambling but there are some gems of insight in there and the key one is to learn how to lose.  He cite the example of a trader who loses 9 times out of 10 but wins big on the 10th.  The secret is to lose small and win big but stay in until your thesis triggers.  Most of the big time traders will say that they make most of the profit from only 5% of their trades.

As it happens, while my Oil Shorts were getting stopped out I was able to get Long Stocks and Short Gold/Silver.  I am also short USDCAD and waiting in the wings for USD to top and turn Bearish, no exposure yet.  All of my positions are now stop protected at Break Even.  All of this was achieved through my technical analytical method with no regard for news or tweets so my answer to the points you raise are as follows:

1. Technical analysis (of various forms, not just mine) does provide experienced traders with the means to enter and exit trades profitably.  However you can't get it right all the time and it may take several attempts to catch a move.
2. What you consider volatility on Oil or stocks recently I do not consider out of the ordinary.  The drop at the end of July on stocks was but I was able to take advantage of that big time using my method.  Professional traders typically bemoan a lack of volatility as it is volatility that allows them to make money.  Naturally you can also lose big time if you are going the wrong way or not practicing good money and risk management.  So the questions becomes, how do you ensure you are going the right way and how to do recognise the triggers to take a trade?
3. I would say, personally for me, that there is no point in trading short term.  I tried it at the beginning like a lot of newbies, because I didn't know how to trade, didn't have a timeframe and method sorted and hadn't sufficiently practices the craft and therefore didn't have trust and conviction in my trades.   So I was glued to the screen and made bad choices with big time psychological impact factors.  Also I couldn't see the wood for the trees trading at the short time frames.  Now I tend to only trade long/medium term swings and rarely day trade and don't spend the day glued to the screens.
4. Markets are not easy to predict, I might say impossible, which is why I don't try to do it.  Professional money managers often make calls about where a particular market or stock will end the year because the punters demand it but this is a pointless exercise.  Who cares about the end of the year?  What I do is generate scenarios and map these as road maps (people on this forum misrepresent this as fortune telling but it isn't).  When I see a market conforming to one of the scenarios I have a high degree of confidence in it and my associated trades.  When I see price action that dose not conform or that breaks the scenario I re-assess.  I am always stop protected.
5. Is it worth the effort to study, create and practice a trading methodology?  I don't understand why anyone would try to trade without doing this.  I know how it happens, I did it myself at the beginning and lost a lot of money learning the hard way.  After many years I arrive at a point where i have something that works and practice and refine it continuously, ignoring the naysayers.  Anyone trying to trade without this is gambling in my opinion, not that any of it is not gambling, in terms of risk taking that is.
6. You seem to assume that EWT is the only thing I use.  EWT is only one element of my methodology and it does not form part of my trade triggering method but is merely an analytical tool to get an understanding of where a market is in the inexorable and irrefutable cycle of up/down; down/up.  As it happens the basics of EWT are incredibly simple, not complicated at all.

 

[Mercury]

Just a little further insight into trade entry and management for you @dmedin with live market price action.

On the chart below I show where I first reentered Oil Shorts, from previous posts you will see it was also where there was a gap down, close and fall again on the Daily chart.  Price broke through an important support zone (red lines) that is now resistance (left side of the chart).  It then rebounded back and put in a retrace and fell through support again, this happens a lot.  I went short on the second break through with stops above the previous short term high.  After that there was a small retest of support that failed and the market carried on down, then I moves stops to break even when I judged the market wasn't going to retrace suddenly, take me out and then carry on down again.

So far so good but as the market hit the next level it rebounded.  My question at the time was whether this was just a small rejection prior to another swift retest or something else.  It was something else but then it looked like the price action may have completed a retrace.  I was wary though because rather than drop away it went into consolidation.  The breakout of consolidation would be important for short term direction.  A break lower and I could consider adding to my Shorts.  A break higher and I may have to reconsider the whole move.  The market broke higher so it was time to close out, small profit and wait.  Note prior to this I had move my stops to break even so, barring a flash move I was safe (no loss).

At the end of day yesterday the market hit back into that same S/R zone and slowed and turned.  Based on my methodology this was a good place to take a low exposure Short (stops just above the resistance zone).  This is a preemptive trade as I did not wait for a small 1-2 move so it could get stopped out by another leg up.  The market moved down and now I have stops just above the previous high for a very low exposure because if price comes back up to this level it is likely to do that additional leg up so no point in risking a larger draw down, just cut and seek a reentry later.

In this whole situation I made a small profit on the first positions taken and was at break even with stops anyway and now I try again as my thesis is still that Oil goes down long term.  I will only look at my other scenarios if Oil materially breaks back through the near term over head resistance.  It may take me a few attempts to get Short again but I don't mind this, in fact it is common.  No one catches all the moves perfectly all the time, the trick is to ensure you are still there ready to catch the final one without taking too much pain.  To do this you need a method to assess the market direction (long and short term), likely trigger points for a trading opportunity, stop protection that makes sense both in terms of the price action, S/R levels and your account size and good in flight management once you are in a position.  That takes time, study and practice to achieve.  If you don't have this how can anyone decide when where to trade?

[Mercury]

So it looks like my crazy set of channels on the Daily chart is still holding well.  The breakout of the last channel line, which coincides with a nice zone of lateral S/R was retested but failed as I noted in my previous post.  I got Short off an initial rejection from this zone and Resistance line with a tight stop but price never came back so nicely in on a couple of Short positions and stop protected at BE.  Price moved back through the monthly lower channel line (purple) and put in a quick daily candle failed retest and dropped away.  It is possible we could see another retest of this resistance zone before any further move but a break below the 5760 level would be indicative that the Bear has resumed and obviously a break of the previous low around the $56 mark would once again bring $50 into focus.

 

[Mercury]

Is that a failed support/resistance zone I see?  Hit and rejection on the Fib 62% on NMD with a reasonable A-B-C form.  As per my previous post, need to see a break below the 5750 level to get really into this but worth a close stop Short to add to my previous positions.  A break low and then through the $56 mark would make this a really interesting medium term bearish move. 

[Mercury]

OK that didn't work.  As the man says:

So the Bear got me this time but actually for a small profit so I'll take that.  But the market came up to the Fib 88% around the EIA oil stocks data release and turned there.  Given the low exposure with stops just above the previous high (a break above this changes the immediate scenario I am working to) I went Short again prior to the data release and moved stops to the current high after the price action settled down.  As is often the case the data suggested a rally and the result was the reverse...  One reason of many I don't trade the data releases just the subsequent price action as part of my road map.

So maybe I will get the bear this time, dunno, let's see.  That is the nature of trading.  No guarantees, nothing is fool proof.  I can't control data, the market players, sentiment of the market.  I can only control myself and my own analysis.

In terms of the technicals, the resistance zone remained strong and the overall thesis and long term technical set up is unchanged for me.  Even a break above the previous high would not necessarily change the long term picture but it would necessitate a relook.  So far that is not necessary.  As well as the resistance zone there is an A-B-C, which is not that clear cut and minor NMD.  Not the strongest set up but still a potential bearish turning point and so it turned out to be, so far.  If this move is to turn into a wave 3 bearish phase I would expect it to move down quite smartly.  If not, well let's wait and see.  

[Mercury]

Brent just went lower than the early morning low after a nice sell in rally.  Looking good to eat the bear this time...

Trick is to not get mauled too badly when it is your turn so you are still alive to profit from the next one...