Crude Oil prices slipped off the recent $100 per barrel record, and are now completing a sell swing lower. But how long will the recent sell swing last?

• New price highs NOT confirmed by new momentum highs
• Resistance is clearly at $100 per barrel
• Rising trendline has been broken (beneath $96)
• Rising 20 period moving average has been breached (at $95)
• Price may find potential support at $92 with the 50 period moving average
• Price is in a confirmed uptrend – odds favor higher prices

For educational purposes, I have also highlighted a “Bollinger Band Squeeze Play” in early October.

Due to the Range Expansion/Contraction principle, prices often eject out of consolidation zones (highlighted by narrowing of Bollinger Bands) and trend in a sustained ‘breakout momentum’ mode. New momentum highs confirmed this break.

It would appear that prices should support in the $90 to $92 range before making an attempt to retest or exceed new price highs at $100.

Due to the potentially weakening economic conditions in the United States, oil may fall on expectations of reduced demand… but we make money off price movements, not expectations.

Nevertheless, higher oil prices are a further drag on the economy. I’m sure a lot of investors (not in crude oil) would love to see a break of the $90 zone. For technical traders, that would signal a potential price move lower.

Until it happens, price is still in a confirmed uptrend and as such, odds seem tipped in favor of higher oil prices in the short term.

I was reading Mark Douglas’ book Trading in the Zone and came across a most perplexing yet interesting quote I thought I should share.

In chapter 7, Douglas is discussing “The Trader’s Edge” and about certainty and writes the following:

“[Traders often] crave the sense of certainty that market analysis appears to give them.  The typical trader wants to be right on every trade.

The irony is that if [traders] completely accepted the fact that certainty doesn’t exist, he would create the certainty he craves -they would be absolutely certain that certainty doesn’t exist.”

The point is that the market is not about certainty, and analysis is not about making you right.  The market and trading is about probabilities with uncertain outcomes.  Analysis cannot make you right, but it can provide you awareness to other opportunities or potential opportunities where the odds of one thing happening are greater than the opposite thing happening – this creates a temporary imbalance or opportunity which is defined as a “trade.”

That’s what this game is all about!

Apollo Group (APOL) has shown amazing relative strength in the current market environment, and has actually ‘launched’ to new highs not seen since 2005.

Having nothing to do with space exploration, the Apollo Group is actually an educational ‘umbrella’ company, with subsidiaries such as the University of Phoenix and Insight Schools. It provides education at all levels. There are other sites to learn more about the fundamentals of the Apollo Group, however.

Let’s set this picture up graphically, starting with the monthly chart:

Notice the major run-up during the bear market of 2000 – 2003. The stock increased from $10 to $95 just as 2004 started before falling back to earth.

Potentially, one could assume that during bear markets, people rush back in droves to further their education. Just a theory.

It appears that round two is underway, and a potential retest within the next few years of prior highs is not unconceivable.

I have noted a momentum divergence from 2006 to 2007 which potentially forecast the reversal and upcoming strength by the bulls.

The weekly chart of APOL is a near perfect study in Bull Flags and Moving Average support:

Each “flag” is highlighted in green, while each pullback to the 20 period rising moving average received a blue arrow.

Volume confirmed each upside breakout. We have a strong and dominant current uptrend in place.

Let’s also take a chance to look at the strong momentum divergence during 2006:

Notice the prolonged momentum divergence which you can almost “feel” developing as subsequent price swing lows became shallower. An impending upturn was increasingly likely.

However, just like the market loves to do, there was a final downthrust in price which shook out all sellers quite violently before beginning the eventual and expected direction up. It was a sudden, unexpected, and bloody downswing in late 2006.

Once all the sellers were washed away, price could comfortably begin its new uptrend which continues to this day.

Speaking of daily:

The daily chart appears to be completing a “breakway gap” that could lead to new price highs. The intraday price rejection of Thursday was quite bearish, but may prove to be a small blip in an otherwise powerful up-trending stock.

Nevertheless, it might behoove you to keep an eye on this stock… before it flies away from you.

Despite all the bad press and media in terms of “recession” and “bankruptcies” as well as technical analysis pattern breakdowns, the market has shrugged off all this news and rallied strongly the last two days.

Here’s a look at a “Swing Chart” I view in TradeStation:

Despite being in a confirmed downtrend, and making new momentum lows, and breaking from a descending triangle pattern, the market (Dow Jones) is in the middle of a proposed up-swing (counter-swing) in price that should terminate around 13,100, which corresponds with recent support (now potential resistance) and overhead resistance from key moving averages (specifically, the declining 20 period).

I know quite a few people who have moved into cash or bonds, particularly this week, who are temporarily upset at their decision.

“I just moved into a defensive position out of the market! Why is the darn thing going up?” they’ve asked me.

I’m not a long-term analyst, nor am I qualified to provide long-term investment advice, but I tend to follow market patterns and prices one swing at a time. Currently, we are experiencing an upswing which is no surprise at all to many market participants.

Price moves in a wave-like motion of reaction/counter-reaction or swing/counter-swing or impulse/counter-impulse which “trends” price higher or lower. Lower prices either attract new sellers or they don’t, but they do so in a swing-like motion where prior levels are tested for new buyers and the cycle continues. Price rarely jerks from one level to the next without some sort of counter-measure or counter-test.

That’s what’s happening right now and it’s totally natural. In fact, aggressive traders can be playing to the upside and making profits on the daily chart which is even in a nice and potentially fresh downtrend.

Recall that downtrends are – at their core – a series of lower lows and lower highs in terms of price swings.

Let it also be written that the fabled “Plunge Protection Team” may be working their influence as much as possible at these levels, which have held as support two times prior.

Make no mistake at the timing of the Bernake/Bush/Congress reports/headlines/stimuluses that are being announced. Something ’strange’ always seems to happen when the Dow hits about 12,500 or the S&P 500 hits 1380.

A rate cut is announced, a new string of economic stimuli including tax breaks are announced, etc etc. It’s fun watching how the charts react to such pronouncements by government officials.

Anyway, be safe and best of luck. It’s dangerous out there for both longs AND shorts.

Apple Inc (AAPL) dealt some pain to traders who were short Apple stock or options today with a rambunctious end-of-day rally that took price where the proper ’short-entry’ occurred.

Typically, you want to short moving average (or support) breakdowns at the point of confirmation, or break-point, which would have been just above $180.

My guess is – if you’re like me – that you wait a day or so before entering just to make sure that this break isn’t just another whipsaw that will steal potential profits and play out as another loss.

Maybe yesterday’s action and market weakness was enough confirmation that it was time to start shoring stocks and you chose Apple, with its nice breakdown beneath a key trendline and moving average. You shorted near yesterday’s close around $170.

You felt great this morning, but took heat throughout the day and by the close, you were down $8.00. Yikes! Did Apple take a bite out of you?

These things happen. That’s why trading is more akin to a game of probabilities, rather than certainties.

Not every trade works out. Not every break above resistance or below support works in a major trend that you’re afraid you’ll miss out on. Sometimes you have to take your stops and move on.

Other times, you’ll enter, then the market will ratchet against your position, teeter very close to where you placed your stop, and then take off in the direction that you expected. Unfortunately, this seems to be more common than people would like to admit.

Nevertheless, if you are short Apple, your stop should be somewhere between $180 and $185 and – I hope – you didn’t “load up the boat” with puts.

Treat each trade separately and try not to play for the elusive “big win.” Stick to your plan, take heat when it comes, and don’t panic out.

Oh, and try to have fun!