Thursday 10 December 2009
What happened to the cluster of closes that showed a lack of downside
direction, as Crude has dropped like a shale rock for five straight days?
Not an unreasonable question…
The cluster of closes we identified as a potential prelude to a rally did not
materialize, as expected, Crude – Cruising On Cluster Closes, but that does
not mean Crude Oil may not yet rally. How often have you seen a chart, after
the fact, and thought, “It was so obvious. How could I have missed it?”
Hindsight is so much easier!
We saw the clustering of closes as opportune, after several weeks of holding,
and we did not want to miss out. Seems like the trading gods noticed and
decided to make life difficult, at least in the present tense, as price kept
dropping. It is the trades we do not see in time that the trading gods flash
before our eyes.
Life is not perfect, nor are charts. Despite the continuing erosion of price, the
technical structure on the weekly chart remains positive, and the trend remains
up. The daily chart was more problematic. Then we took a closer look at the
daily and noticed the trend was up to sideways, depending upon one’s bias.
One can see that the previous correction, August through September, took 35
trading days, and the trend resumed up. Well, yesterday was trading day 34,
and there was a sharp volume spike on the decline to the lowest levels in a
month and a half.
The question is, could that be washout volume, a final capitulation for many
longs? It is possible, maybe even probable, given where it occurred, and when.
The decline into the September low was a higher swing low, and the current
decline is also a higher swing low. The definition of an up trend is higher highs
and higher lows. If the shoe fits…
What to look for now is HOW price reacts to this decline. If it holds and does
not go lower, [or a new low, higher close], and takes hold, then developing
market activity should show signs of recovery and present another buy
opportunity.
Was it the cluster structure we started with in the analysis? No. But things
change, and we now have new information with which to work that still fits the
bullish scenario. On the other hand, we could be dead wrong. That, too, is a
part of trading, which remains an art and not a science. Because we rely upon
knowledge of the trend as the number one trading priority,
[see http://www.edgetraderplus.com/, click under Free Articles, “How To Trade
Successfully In Any Market,” or get our “Top Ten Tips To Successful Trading,”
located on the main page], we have not been “long and wrong” over the last
several weeks. We made money, but the recent intra day trend has kept us
from buying and holding, especially on the washout the other day.
One can be “right” in an analysis and lose money just as well as being wrong
in making a poor trade decision. Identifying the trend as up, but lacking a
reason to be long, we have the opportunity to be patient and wait for the right
entry signal, or simply never get one. Knowledge is not enough, it is what one
does with it that counts.
Being flexible and adjusting to developing information is a necessary requisite
for successful trading. We are in a waiting mode, waiting for a reason to act, or
not.
