It’s Wednesday; time to write about crude oil. The DOE report comes out at 9:30 AM on Wednesday; crude futures tend to consolidate the day before the report, then have a directional move after the report is released. Today was no exception. Let’s look at today’s action; there was a good opportunity this morning.
From its peak in mid October crude has been making a series of lower highs and lower lows. The Dubai World default (Nov. 27) yielded the big selloff to 72.39 in the January futures; they subsequently rallied into the beginning of this month.
Zooming in on the past couple of days, Monday’s trade saw the first close below 74.34 – a 50% retracement of the October rally. Crude was contained yesterday; the Nov. 27 low held, and broken Fibonacci support at74.34 was resistance.
Look out below!
There were two patterns that gave potential trade setups for today. First, yesterday had a narrow trading range; it had the narrowest range of the previous seven sessions. A narrow range session is often an indication to expect a breakout trade and directional move in the following session. Second, yesterday was the fifth day with high to low intraday action. This meant that today was tentatively a “Buy day” according to the Taylor Trading Technique.
A core concept of both Breakout trading and the TTT are the idea of “reference” prices; chart points to use to anticipate where a market may go, and how to trade it. For today, the reference prices for a Breakout trade were yesterday’s high and low. For a TT Buy day we watch the previous day’s low; a TT buy signal is triggered when the market trades below the previous session low then trade back above it, signaling a change in momentum.
Looking at a 30 minute chart of Jan Crude Oil futures, you can see that yesterday’s low held last night, as traders didn’t want to press the downside (yet). After an early press to the down side it spent much of the session trading around the session open.
The bar following the report was a fun one. The first move was to move lower as the two lows were taken out. That selloff failed, and a rally ensued. Initially this rally looked like a TT Buy day – a break below the previous day’s low formed an “excess” low, then a rally ensued.
The rally stalled at the session open, as it was unable to push past that area. I was still viewing today as a Breakout day; it would have had to push over the overnight high at 73.87 a Breakout Buy; the inability to reach up there brought in selling.
The selloff gained steam; it traded back below the two lows. Those points could have been used for breakout sale points; a more conservative entry point would have been the previous intraday low at 72.02. As these points were taken out, the ensuing selloff took about an hour to fall two Dollars – a move of $2000 per futures contract.
Breakout!
Looking ahead, the path of least resistance for Crude Oil is lower; the Sept. 25 low at 66.10 is the next chart target. In the short run, breakout days tend to create “excess” moves, so I anticipate that tomorrow will be a Taylor Buy day; to take back some of today’s “excess” selloff.
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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