Each week Longleaftrading.com will be providing us a chart of the week as analyzed by a member of their team. We hope that you enjoy and learn from this new feature.
The chart shown below is a snapshot of the July Crude Oil futures. After spending the entire month slipping lower alongside of most of the major global markets, Crude Oil prices have tried to recover off of $82.00 a barrel in the first week of June.
One of the identifiable themes for this chart is the range that Crude traded in throughout May (see blue trendlines on chart). There were four days in the month when prices closed outside of this range, and this is what I feel is most important to highlight.
A common theme in market reports over the last few months has been the lack of volume in many of the futures, and markets overall. As Europe and China continue to disappoint, traders have been booking gains on their long term positions and have failed to return with the same enthusiasm that we saw when the US FED was actively easing the market.
Over the next few weeks, the markets will not only wait for the FED’s next FOMC policy statement but will also look for a final election decision out of Greece. This week, traders look to news from OPEC on Thursday as they meet to discuss oil output levels. The impact of these meetings and reports will be instrumental in determining whether many markets will recover from May’s slides, or whether they will endure another leg lower.
The reason that I chose the Crude Oil as the chart of the week is because I feel that the next time that Crude prices close outside of this range again, the move will show us a trend to trade. What I think is very important is to note how prices broke the trend on the upper end for two days, and then fell back into the range. Normally, closes above the range for multiple days would see follow through buying. Instead, prices quickly corrected lower.
Three days later, prices were not only lower; they closed outside of the range on the bottom end! Normally, traders would look for a follow through sell after two days below the range but were treated to an almost $5 rally in three days which was corrected twenty four hours later and almost corrected AGAIN twenty fours after that! If Johnny Carson were reporting on the technicals over the last eleven days, I imagine he would say, “This is some wild, weird stuff”!
With all of this in mind, I will be watching for Crude prices to close outside of the range again. I believe that the next time this happens, the trade will see follow through buying or selling instead of two days followed by a reversal. If Crude closes above the range, I will look for a continued move higher, but will definitely be recommending traders use stops below and in the range. If Crude prices begin closing below the range again, I will look for follow through selling and will recommend selling the futures with stop orders above and in the range. I will also recommend that traders utilize a trailing stop as the market allows.
I hope this chart and trade idea is helpful for those who read it. Please feel free to comment directly on this page, or if you would like to speak with me directly I welcome calls to my office at (888) 272-6926 or email to
bb****@lo*************.com
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Thank you for your interest,
Brian Booth
Senior Market Strategist
888.272.6926
Fair value has nothing to do with market value in terms of trading.
Especially in this Wild West environment
it is unbelievable to me that anyone thinks that oil is fairly valued at $80...it should be more like $35...even less.
Thanks for the reply Greg. I agree that fair value should be much lower, but I never underestimate the power of the major players in the Oil business. I doubt Crude would ever get back to prices that low, but certainly could afford a few bucks lower on the chart. I also think that any trader that has followed Crude Oil prices and Middle East headlines, would be a bit hesitant to load up on short positions. Oil prices are always one or two headlines away from big reversals.
As long as the Euro stays under pressure, oil cannot rally because higher oil needs a weak dollar. Europe will not solve their debt problems by issuing more debt. The Euro is short term oversold at this time, so a little rally in crude oil is due. Eventually, the weak countries in Europe will do the right thing to get out of their mess. Crude oil should not trade much below $80 unless we have a global meltdown.
I am looking for a combination of breakouts of ranges (as mentioned above) and also a steady flow of volume back to the markets. Lately we have seen light volume overall, with periodic spikes after big reports. That is what causes big headaches for most traders.