Crude Oil and Trade Triangles

May 9, 2008: 10:15 AM CST

Crude Oil tapped above $124 intraday today, marking yet another new record high for the crucial commodity. Is there a potential way to analyze and trade this development with Market Club’s Trade Triangle Technology?

Adam Hewison today released a new brief info-movie for your benefit. I thought it was funny that he described crude oil as “The gift that keeps on giving… or taking.”

Further, he writes:

With crude oil hitting historic highs today, I thought it would be a good idea to do a short video updating you on our “Trade Triangle” technology and the signals we have generated in the June crude oil contract.

This five-minute video will give you an insight into how you can approach the crude oil market using MarketClub’s “Trade Triangle” technology. This approach takes a great deal of the emotion out of trading which is crucial for any successful trader.

I hope you enjoy the video and learn how to employ our technology into your own trading.

Check out the video “May Crude OIl” and also other videos (link at the video page) for other “Trader’s Educational Whiteboard” brief videos.

Beyond this video, be sure to check out the page “Market Club Introduction” and consider joining this beneficial and affordable service.


Commodities Race to New Highs

May 8, 2008: 7:12 PM CST

Do you know where commodities have been lately? Does it matter to the market? Let’s take a look at a few select commodity indexes to see the new highs made on some of these indexes today.

First, the Goldman Sachs Commodity Index:

Notice the extreme price movement that created the surge which took this index to new highs.

Now, let’s compare this to the more popular (and probably more widely followed) $CRB Index:

Notice it made new intraday highs but closed right on new high territory. Price may be forming an ascending triangle (bullish) pattern, as the lower trendline appears strong because it has been tested at least four times.

Let’s examine two commodities – one to be serious, and the other to be fun.

Crude Oil Prices ($WTIC):

Crude Oil has been frequently mentioned on the news as making new highs.

The Bull Flag (not shown, but mentioned previously on this blog in my price projection post: “Crude Oil Gushes to New Highs” – I called for a target near $124 per barrel) has resolved and achieved its price target, and so that is no longer the dominant technical chart pattern in play now. The recent surge resembles some sort of ‘blow-off’ top complete with momentum divergences (also not shown).

Finally, let’s look at an index you’ve probably never seen before – The Goldman Sachs Livestock Index:

I wanted to show this chart ($GVX) because of the amazing and remarkable gaps (that can occur with these commodity markets) from early to mid March. Recall that futures market can go “lock limit up” where trading ceases for the day and few orders can be filled. It’s an interesting twist to futures trading that can scare away new traders.

Nonetheless, the index itself is near new highs (2007 showed highs of $250), the price action is interesting and very volatile – but it serves as an interesting contrast to the many stock and index charts you’re used to examining.

For more insights on commodities, futures trading, and even stock trading (including proprietary trading signals, analysis, scans, and trader interaction), join the Market Club.

For some real ‘heavy lifting’ analysis software, check out Tradecision – readers receive 15% off the one-time purchase (no monthly fees).  I’m still mastering this amazing software tool available to retail traders.


VIX Off 2008 New Lows

May 8, 2008: 11:31 AM CST

The $VIX (Volatility Index) is bouncing off new lows for 2008 in a sign that traders and funds have become less fearful in the current market environment.

Perhaps they are unwinding their hedges or engaging in some sort of risk-seeking or ‘cooling off’ period, but it is interesting to note that it took the VIX 6 months to make a new low in 2008.

The VIX actually tested a low made near Christmas of 2007 and could be finding support at that level as the main US Stock Market indexes find resistance on their daily charts.

There is a tight range for the indexes, as they are generally beneath their falling 200 day moving average and above their 20 and 50 day moving averages.

Conversely, the VIX is beneath all key moving averages and is in a confirmed daily downtrend while the S&P has been in a short-term uptrend since mid-March.

If you’re not familiar with how to analyze the VIX, or why it’s inverse the S&P 500, check out Bill Luby’s post at the aptly named VIX and More site entitled “Ten Things to Know about the VIX”.


Intraday Foibles

May 8, 2008: 1:45 AM CST

I was quite impressed by the strength of the bears in swiping the US Indexes lower on Wednesday, giving the bulls only a marginal chance for any sort of retracement.  I recommend saving today’s charts for the files under “strange price action” for future review.

Let’s look first at the DIA:

Price made its intraday high just above yesterday’s close, which formed a shooting star (bearish reversal) candle pattern.  After consolidating into the 11:30 time slot, the market broke to the downside and consolidated in a slightly rising formation (actually flat on the SPY) which broke sharply and quickly to the downside.

Bulls only neutralized selling pressure, and did not overcome it, as evidenced by the strange ‘flat-line’ price action into the 2:00pm hour before the bears took full domination of the intraday price action, pushing the indexes to new lows on surging volume before making one final push downward to close near the session lows.

In terms of ideal trades, one could have entered short on the shooting star candle at yesterday’s close at 10:30 and targeted the 200 period moving average.

One could have ‘gotten short’ again when the Bollinger Bands narrowed at 1:00 and entered playing for a breakdown in price with a stop above the key moving averages.

A second such trade could have been entered around 2:00 (actually any time before that once you recognized the price retracement and flat-line price action – akin to a rectangle).

Price breakdowns can give you large targets, and with the swift action, you may have been tempted either to take a small target or try to fade the action when you felt it ‘bottomed’ but momentum often precedes the price and the new momentum (and price) low at 2:30 was a clue that the actual price low was likely yet to come.  Indeed this was the case.

I focused on the rectangle consolidation patterns on the SPY chart below:

It’s unusual to have two rectangle consolidation zones back-to-back, and also unusual to see price form such a clean stair-step pattern without meaningful retracements against the prevailing trend.

File this day for your future reference and study price action to gain greater clues into your own interpretation.

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Indexes at Support or Resistance?

May 7, 2008: 9:24 PM CST

Are the Indexes at Support or Resistance?  Today’s action would lend to the “Resistance” camp, but let’s take a closer look.

Let’s start with the daily chart of the Dow Jones Index:

With this chart, I have Resistance plotted via two areas:

1.  The declining 200 day moving average

2.  The horizontal trendline via prior support/resistance

I have Support plotted also via two areas:

1.  Rising (up-sloping) trendline beneath price action

2.  The Rising 20 and 50 day moving averages

So which is it folks?

Let’s look at the S&P for a similar situation:

In this, I’m showing sort of a ‘rising wedge’ potential pattern.  Generally, rising wedges are bearish patterns, but it’s difficult to draw an exact converging trendline pattern that makes up the wedge.  It’s more akin to an upward sloping trend channel, but still a break beneath the lower trend AND the moving averages would be bearish and set up a potential retest of March lows.

Let’s pull the daily chart back just a bit and compress the bars to see how many valid trendlines we may be able to draw on the Dow Jones (and similarly in the S&P 500) Index:

At first glance, you may be asking what I have done on this chart.

I’ve drawn two (current) resistance lines (red) and two support lines (black).

Notice that three of these lines converge – along with the 50 day moving average – at or near 12,700.

There is a lot more going on than I’m showing on this chart, but even still, there are a variety of trendlines that can be drawn (not to mention Gann and Fibonacci retracements as well).

It’s best to keep your analysis simple, but it’s interesting to not how many seemingly ‘obvious’ chart points are setting up now.  It will be interesting to see and trade the resolution!

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