Crude Oil Forcast Aug 20-25

The following synthesis is how I see the position trading strategies for crude oil futures unfolding for the week of Aug 20-25 2012.  It is rather long, but to anyone whom is interested in  or actively trades  crude oil futures, it may be a worthwhile read......

We have seen a substantial rally from the light sweet crude oil futures (symbol CL) over the passed week, Aug 13-17.

I posted a shorting play a week ago Friday for a quick 100 tick pop to the downside.  It was a successful strategy, but a long term downtrend was not in the cards, and we have seen a reversal,  reflecting an overall bullish sentiment from futures players.

As of now, there are 2 key resistance levels to the upside that could bring us into a consolidation pattern for the next week. Both are moving average #'s, both are fairly rare in coming into play, and even rarer in corresponding within a 1$ range (100 ticks).

1)  The Moving Average that I use on the Monthly Chart for (CL) is at 96.87 (upside resistance)

2) The Moving Average from the Weekly Chart for (CL)  is at 96.20 (upside resistance)

As of right now we are seeing a volume split of 3-1 for the October contract to September......this is interesting because the traders have been very reluctant to roll from Sept to Oct. I expected the October contract to be in full control by the middle of last week, but that has not happened.

So, we are currently showing the price for CL at  96.51 for Oct and 96.20 exactly  for Sept...both values smack dab in the middle of our consolidation zone.

We will focus on the October contract because it should be in control tomorrow, and forward.  The October contract has already eclipsed the weekly moving average of 96.20.

96.87   96.51  96.20   

If we can break the 96.87 barrier early this week and establish a presence above 97.00, then I expect us to test 100.00 in short order.  I have other key resistance  numbers up at 100.57, and 107.14, but we will deal with those if they become relevant. I will be looking for the first buy signal over the 9700 ( as per system, based on daily chart).

In the event of a stall and failure at the MA of 9687, I will be looking for the first sell signal (as per my system, in this case based on the daily chart) and look for a substantial downtrend to ride towards the elections in November.  The potential drop would be at least in the 8500 area.

My gut says that we will have a problem cracking the 100 level in an election year, and the incumbent will gain much popularity with a Fall sell off of crude down into the 80's somewhere......this is where I think that the maximum profits can be taken.  However, I cannot look past the technicals, which clearly point to currently a very bullish situation, and if my resistance levels are eclipsed we should see the a test of the 100 level in short order.

In conclusion, I am currently looking for a breakout play to the upside preceded by a buy signal above the 96.87 number, preferably over 9700 as well.  IF the buy sets up properly, I ride it to 99.75.

If the sell signal presents itself, I am looking to take a multi-layered approach in taking profits.....exiting several contracts at graduated profit targets with a few runners that will stay on until we see the mid 80's.  This is my preferred approach, but I have no problem going either long or short.

In the event that no signal is confirmed for this position trade, neither a buy or sell presents itself, then all of this analysis is worthless and back to the drawing board.

I expect a signal this week, and all trades will be documented before they are made.......exact entry prices, exact profit targets, and finite values for stop losses.

The current time is a good one for a substantial move in crude oil.....many traders are coming back off summer holiday, and the election year will have the institutional investors in the market with both feet.  With any luck, many opportunities will arise between now and November.

GL for you in your oil trade.


I like Oil , but am more of a long term player and like the companies for their nice, steady dividends. 

There aren't too many things in the world that people must use, without any alternative.

Thanks Rush.  Nothing wrong with steady dividends.  Do you play options on stocks at all?  That is an area that I would like to become more educated in, the leverage does lend itself to an attractive upside.


Today was a bit of a holding pattern for crude, which does not give rise for alarm.  No buy or sell signal is showing up yet in order to get into the market for a position trade. 

We saw a very definitive test of the monthly MA at 9687....today's high was 9683, we are currently sitting at 9620, which is a number that has surfaced several times over the passed 2 trading sessions.

For tomorrow, the play will be to scalp over 9700 even.....these scalp trades are not rocket science......I will look for 10 points over 9701....ideal times to breakout  on the US market are  the open at 7-730 mtn,  mid morning 930-1030 mtn, or on the close at 1145 to 1230 mtn.

These scalping plays are delicate in nature because it is a tough proposition to buy blind and hold on a number without an indicator that acts as an anchor. The idea is fast, fast, fast...no taking a big draw to make a few bucks.

Preferably, price would fail under 9700 and set up a nice sell signal for Wed's trading....or even a compression pattern to go long with the trade possibly picking up some steam off of the inventory numbers that are released every Wed morning.

So we will see...it is very possible that we grab steam over 9700 and see 9900-100 anytime......my range oscillators predict a price range of 185-210 for tommorrow.....that would mean 9891-9924 upside for tommorrow,and a potential low of 9451-9426.

It seems as if timing in trading is more important to profitability than having a good roadmap, so hopefully things set up to get in and not be on the sidelines for a good move.

The scalp trades for today were a success...9701-9711 cashed in instantly as we saw the initial break over 9701 blow to 9725 quickly.  This level was tested on the europe close, and again in the first hour of trading this morning, 700am-800am mtn.

Today's high came in at 9785 and the low at 9606.....currently we are sitting at 9672.  

On the close today, a sell signal has set up on the daily CL chart.  This signal is not necessarily the best signal in the repitoire, but nontheless it is a very good one and fits into what the gameplan is for this week.

So, here is the plan of execution.....breakout play to the high, trend retracement play to the low.  Both trades are outlined as per execution below.  The first entry price that is hit will be the trade that will be taken, and active, thus rendering the other null.

1)  Breakout high:   If price continues upward, I am going long at 9786. I expect 60-90 ticks to the upside within tommorrow's session in this scenario.  Profit targets will be at 9846 and 9875. This trade will not be considered a true trend play, thus the stop out point will be substantially tighter, near the low of day when elected...as of right now, that is in the 9659 area.  9659 will act as the intial stop out point for the long play. However, as the day progresses, the 30 minute crude chart will be used to tighten the stop (first to the SMA, then symmetrically with the prevalent trend) in order to bring our profit ratios into alignment.

2) Trend Play short:  This trade is substantially different in terms of strategy. It is a trend play, so the duration will be greater, the profit will need to be greater as the initial risk is certainly greater.  So, if price falls, I will be going short at 9605. Maximum low is in the 9454-9379 range.  Good play here for 100-125 ticks.   Initial stop is expensive...it will be set at 9786.  Profit targets will be set at 9505, 9480 and one contract will be left on to run wild, looking to catch a substantial downtrend  down to 9000.  This trade could possibly take until the end of week to see the profits.  At tommorrow's session's end, the stop loss will be adjusted, and position evaluated.  Tommorrow is the crude inventory reporting day, that may add to the noise...it is very possible to see wild swings, the main objective is to close on a down note.

In my mind, the ideal scenario is for tommorrow's trading range is to trade inside of today's range...9785-9606.  This will set up a very favorable compression pattern (similiar to a basic pennant formation) on the daily chart.  Such a setup will enable me to employ a very high probability strategy that is geared to play Thursday's breakout either way.

As of right now, price is at 9677, so it is anyone's guess which trade will become active, or if we will trade inside of today's range.  Those are two very different types of trades....as a preference, I would like to see the rally continue, as that seems to be the path of least resistance.....but even though the short play may take longer to cash, it stands to be more profitable if successful.

 

Hey bigvern, I haven't played options on stocks before..   I just stick with what I know on the buy/sell of common stock..

You really dig through the technical numbers,  which I suppose you gotta do when you're in the trading game.

Good luck, man..

Thanks Rush, luck is good...I will take all I can get.

Today's session traded inside of yesterday's range.  Perfect setup....so here is where we are as of right this second.

1)  Long 3 lots from 9755, which was today's high + 1 tick. For the first 2 lots, I am expecting to see 9950 by tommorrow's close..proft targets are in at 9855 and 9925.  The initial stop is in at 96.24.  The third contract will be let to run looking for 10118.  3930$ initial risk looking for 6330$.

The trade was elected about an hour ago, mtn time...of course I was eating dinner so I am late with the market call.  If anyone wants to call bullshit, fine.....as of right now we are showing 9786, which is in the money....if I were to liquidate right now, it is a 930$ gain.  Tempting, but I am looking for a move here. Famous last words.

Second big thing...we tested and rejected the 9800 level. The Australian market jacked us up to election....  It is very possible that we reverse and dump from here.  If that does happen, I will reverse my position at my initial stop of 9624 during this trading session only. The new profit targets will be damage control, 2 @ 9550 and 1 at 9500.  Nasty scenario, but it has happened before. 

If we enter a consolidation chop period, then I eat it on both ends.....stopped out on the long and taking a big draw on the short.....that is a disaster scenario and extremely uncommon based on my research of thousands of setups over varying time frames.  It is a risk, however a small one, but still very real.

The reason I am in the trade is due to the presence of a strong indicator.  This indicator tells me that we are going to move, and move hard this week.  10000 by Friday on the upside, downside should be in the 9450 area. Obviously, I want the upside to cash.... unless this thing turns muddy and I have to put a belt on my leg to stop the bleeding.

Put on the coffee...long night here....bump on the europe open please, bump on the US open, and Big run on US close. 

Ugly, Ugly, Ugly.  Avoided disaster, but still took a nice loss on the day. 

Went long 3 lots from 9755 last night.  Ended up selling 1 at 9820.  Moved 1 lot  to break even + 1tick (was stopped out at the late day dump) and let one ride with the initial stop of  9624.  Walked out of that one in the hole.  65+1-131=  -65 ticks , $650.

The correct play was to sell them all at 9820 and regroup.  The sell off over night and subsequent failure of the US market to drive things higher with conviction early on in the session proved that my upside gameplan of a large bullish move challenging 10000 was incorrect. The profit targets were not anywhere near coming into play, the upside was a failure.  It cost me.

The late day dump was looking very strong indeed from 1100-1230 mtn...right on the close.  Ended up bringing my downside gameplan into affect.....short 3 lots from 9624....1st profit target was 2 lots at 9550 and second was 1 lot at 9500.  We saw a hard break to 9575...and that was it. 

Admittedly, I pulled the plug on the short trade fairly quickly....the trade went under 9600 and dove to 9575...at that point, I moved my stop to break even +1 for all 3 lots.  At the time, my opinion was strong that we would see 9550 without much resistance....miscalculation #2 on the day.  Again, hindsight is 20/20, but the play was to rack at least a few ticks to bring the account back to scratch for the day, or leave the short play in affect until my low targets were hit, whether it be today or tommorrow. 

Today was what is truly tough about trading.  The good news is that disaster was averted for the time being.  The bad news is today is still a losing day when both ends of the trade in question were profitable....that is a tough pill to swallow. 

The best thing about trading commodities is that you can change your mind about a trade whenever you want.....the worst thing about trading commodities is that you can change your mind whenever you want!!

Well, there is always tommorrow and there is a sell signal setting up for the position trade to short I was considering.  I have to break down the trade still and form a gameplan.

For tommorrow:

Pretty simple scenario. Sell signal on the Daily CL chart, entry at 9574....... will be looking to scalp on the first time through, looking for a 9564 target on 4 lots.  The stop loss will be tight on this trade, dictated by the 30 minute chart, cannot see laying more than 15 ticks to get the payoff here...needs to be fast and clean.

After the initial scalp play, I will be looking to go short at 9574 and look for a low of 9474.   This will be a one lot play, that will need to occur from the US open to the US close.  Basically, I will take a postion that we dump tommorrow if elected during the US trading session.

This setup is a good one to the short side of things.  Today's failure to run at and test 100 can be interpreted as either a bearish sign,  or just merely a test.  Judging by how hard we came off of the 9825 level, someone big was there today.

At this point, I have no idea if we will rally up  and test 100 in the short term.  Symmetry on the Daily chart is broken, and we did reject 9825 hard. My gut is still to the short side in the longer term towards the election, but an elongated compression period is also very possible.  Again, I am still partial to a move tommorrow...I expect good trading and a bearish run at 9450, if the sell signal is elected at 9574. 

We will see.  Basically, with today's debacle, this week has become a negative or push....but that is the way with trading crude oil. When you are wrong it hurts, but when you are right it is worth it. 

Friday's action wasn't too bad.....scalped 9574 to 9564 twice successfully, so last week ended up pretty much a wash. We did not see the definitive move that I was looking for, maybe this week will be different.

For tommorrow and early this week the approach is simple.  As of right now I am short 1 lot from 9574, looking for 9460. 

I have a sell signal setting up on the weekly chart, at 9531.  This is a good signal, that is right near the SMA, which is 9453.  We will see.....After seeing a weekly range of 297 last week (that is very low, looking more in the 350-450 range), I am not sure what to expect for this week.  It is the last week of august, there should be more money coming in on the first week of Sept, as most guys will be back off of summer vacation.

I have no problem being short here, initial stop for tommorrow is 9718, profit target is 9460. Should have a better idea of where we are headed for the long term by the end of the week.