Over the the past three weeks, the heat crack spread has been in a $2.946 to $3.355 balance bracket. Additionally, Monday’s range was within Friday’s range, making it an “inside day.” An “inside day” is a form of balance. An “inside day” within a balance brack is “balance within balance.”
[Editor’s note: For energy market newbies, the crack spread is simply the spread between crude oil and one of its products, in this case heating oil futures traded on the Nymex.]
Friday’s low was within two ticks of the balance bracket low, which occured at the close of the day. Monday failed to re test the balance bracket low and made a new high atthe end of the day.
GO/NO GO Level
The term “Go/No Go Level” was coined by my mentor, Jim Dalton. Jim uses that term when a market reaches an important reference where the odds of a significant move, in either direction, are high. In this case, the lower extreme of the balance bracket is the Go/No Go level. When the market tests an extreme of a balance bracket the two most likely scenarios are the following:
- Gain acceptance outside the balance bracket and accelerate
- Trade near the balance extreme or outside the balance bracket and get rejected, which would likely begin a rotation to the opposite end of the balance bracket.
DOWNSIDE SCENARIO
If the market gains acceptance below the $3.015 support level, it may re-test the $2.946 balance bracket low. If the market gains acceptance below the $2.946 balance bracket low, the next downside reference on the weekly/monthly bar chart is $2.723.
UPSIDE SCENRAIO
If the market gains acceptance above the $3.135 resistance level, the market will likely begin a rotation back up to the $3.355 balance bracket high
Be patient in entering a trade as it is usually better to be a little late into a trade than to be a little early.
