In this morning’s STI watch list, my comment for crude oil was: “Sell day; yesterday’s high at 80.95 is the Sell day objective. Power Buy?” A reader asked what I meant by Power Buy.
According to the Taylor cycle, yesterday was a Buy day for Crude Oil futures. I only knew this ex post facto; as Monday wasn’t a clear cut Sell Short day ex post ante. (Looking back, Monday was a breakout sale, and Buy days often follow breakout sale days.).
In last night’s chart review, crude oil futures showed more clearly that Monday was a Buy day; the close being higher than the open is evidence of the bullish action characteristic of a Buy day.
That brings us to today, the Sell day in the cycle. According to Taylor, on a Sell day the ‘insiders’ ‘engineer’ follow through strength so they could sell off the contracts they bought on the Buy day. The usual price target for a Sell day is the high of the previous (Buy) day.
So if you bought yesterday and carried overnight, we’d be looking to sell at yesterday’s high of 80.95 basis April futures. That’s all well and good, but if you weren’t already long, what would you do?
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That’s where the Power Buy trade comes in. As was the case yesterday, crude futures closed a ways off the high of the day, as late session profit taking pushed it back down. On the Sell day, we look for a rally to the Buy day high, so we can look to buy on the Sell day, with the Buy day high as our profit objective. (It’s time like this I think I need a better term than Taylor’s Sell day).
The intraday (10 minute chart for April crude oil futures is below. As is usually the case, I like to look for trade opportunities on Wednesdays, after the EIA inventory report. I combined the breakout trade idea with the Power Trade setup for a trade after the report. Before the report, the session high for April crude oil futures was 80.42. I used this price as an upside breakout point with the Sell day objective of 80.95.
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The first move after the report was a selloff. That break held at the previous session low of 79.44, and a rally ensued. The move back through the 804.42 session high occurred about 20 minutes later, and it quickly saw follow through to our 80.95 target.
If you follow the Taylor trading Technique, understanding Taylor’s logic for Sell days can allow you to take advantage of Taylor setups even when you do strictly follow his methodology.
This is a sample of the analysis from my Swing Trader’s Insight advisory service. For information on STI, and to sign up for a free two week trial, visit here.
The information contained here includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
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