Crude Oil at the $70 Level Gives a Finger… Trade

May 18, 2010: 10:02 AM CST

I posted yesterday about the importance of the $70.00 level as a “Line in the Sand” Support area for Crude Oil.  Yesterday, price tested and – so far – held that level, developing a triple-swing positive momentum divergence along with a classic “Finger” Trade set-up/resolution.

Let’s see those and the current intraday oil chart:

Reference back to my prior post entitled:

Weekly Perspective and Levels to Watch on Crude Oil” for the broader picture behind why $70.00 is so important.

Notice how price first hit $70 then bounced off that level early in the session of May 17.  Look closely at the positive momentum divergence, using the 3/10 Oscillator (color version), that formed at this level.  For aggressive traders, that was an initial buy signal with a tight stop just under $70.

The trade worked temporarily, as oil futures rallied to the $72.00 level, and so traders assumed that we were perhaps seeing a reversal in crude oil at the critical level.

Not so fast!

Sellers struck one more time, taking oil suddenly under $70 (down to $69.50) but this time on an even more noticeable positive momentum divergence, into what I like to call a “Triple Swing” positive momentum divergence.

Price also formed a vicious reversal candle – notice the dragonfly doji (long-leg candle) at noon.

This was your classic “Finger” Trade set-up, which I described most recently as ‘popping up’ in the S&P 500 on May 11th (the peak of the retracement and beginning of the downward reversal).

If this ‘finger’ in oil is similar to the prior ‘finger’ in the S&P 500, then we could see a reversal continue up and drive price off the critical support level at $70.00.

We’d need to see a break above $72.50 to have further confidence that support will hold.  Notice the mini-negative momentum divergence that just set-up as we tested this resistance level.  That makes the $72.50 level a short-term/intraday level to watch.

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Corey Rosenbloom, CMT
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1 Comment

One Response to “Crude Oil at the $70 Level Gives a Finger… Trade”

  1. Ben Le Says:

    Oil and Oil stocks have followed the market recently. So it's not surprising to see them pullback with stocks. However, the S&P 100 Point & Figure bullish percent index has produced a significant short term buy signal last Friday. As such, I expect stocks to rally in the next several weeks. Also, oil should follow stocks. I'd look to play the oversold bounce in the oil sector here.