Monday 30 November 2009
The continuation of closes, within a small range, is indicative of an inability of a
market to make progress. Given that the closes are mostly on the lower end of
each week’s range and the highs are lower, the lack of progress is to the
downside. Price is retesting the breakout from August, and a retest that holds
successfully is a great trade location for a position.
One can see that even after the damage inflicted by the Friday sell-off, the
chart structure remains intact.
[Daily chart printed mid-day and does not reflect closing price.]
The horizontal line on the daily chart is the same from the August highs carried
over from the weekly chart. Nothing ever happens in a vacuum, and looking
back to the sharp drop from 80 back on the 19th, five bars from the end, it may
have been insiders learning of the pending Dubai announcement that came out
on Friday. Despite the sharply lower open and low price level, Crude Oil made
an impressive comeback rally to close on the upper end of the range, and
maintains the integrity of the cluster of closings shown on the weekly chart.
One thing is certain. The Friday washout took eliminated a lot of weak longs
and triggered some short-selling, as well. From our perspective, the sell-off was
a shakeout, for price quickly recovered and is holding the recovery gains, so far.
Where this shakeout occurred is also significant. It takes place toward the end
of the right hand side of the developing trading range. The further along price
moves on the right side of a trading range, the closer price is in reaching a
resolve. The seeming balance between buyers and sellers will turn into an
imbalance between the battling forces, and the chart structure favors the upside.
Just like on the weekly chart, after five weeks of selling effort, what has been
the result?
Price continues to hold the previous breakout trading range. Note also that the
volume on the sell day was on less volume. A holiday happening? Yes, there
were fewer participants due to Thanksgiving, but results are still positive. What
we are looking for now is a set-up opportunity that provides a reason for taking
a long position.
