Wednesday 16 December 2009
In our last article, Crude Oil – Things Change, the analysis was right on point
in identifying the trend as up, weakened, but still up. We are starting to see
confirmation that the spike volume was stopping volume, as we surmised. The
weekly chart is updated to show how the volume spike and the half-way point
came together and held the 37th day of the decline. We said there needed to
be confirmation that 70.80, [Feb contract], would hold, and it has. [Daily chart,
below weekly]
Markets require patience to let them play out a move, both in a trending
direction, as well as in a counter-trend correction. This may be a counter-trend
correction, but we will not know for certain until the extent of any rally unfolds.
Based on the previous analysis, we took a long position at the first indication of
a potential turnaround, buying Feb Crude Oil at 72.95. An intra day chart was
used to make that determination. Partial profits were taken 160 tics higher in
order to reduce risk exposure.
The clue on the daily chart, as a supplement to the more controlling weekly
chart, [higher time frame], shows that after the stopping volume day, price did
continue to decline, but notice how much closer were the closes and how the
lower lows were smaller in progress. Note how volume declined on the lowest
point of the correction. That told us that selling pressure had dried up. There
was a cluster of closes over a four day trading span, and the last close was the
highest, erasing the negative aspect of the recent lows. We know that a cluster
of closes is a clue that market direction may be turning, and occurring at the
bottom after a 37 day decline increased the probability in the reliability of the
analysis. All that was needed was a reason to buy, and we did get it, next day.
As we stated in the last article that one has to be adaptable and willing to
change when developing market activity provides new information. This Crude
Oil activity over the past few months is a terrific example of how flexibility can
pay off.
Long Crude Oil.
