The above chart shows a view of light sweet crude in Telechart with 20 day, 1.5SD Bollinger bands and 20 day Keltner channels. On 7/7/09 a short squeeze signal triggered ( not to be confused with a short covering squeeze ) when the Bollinger bands moved from a sharply contracted state inside the Keltner channels to an expanded state outside the Keltner channels accompanied by a downside breakout.
Not only was there a downside breakout, but oil confirmed a double top and simultaneously broke an upsloping trendline from February and broke below the low of the high month - 3 signals in one. Upside resistance is now the June low. The primary downside target is the equidistant projected parallel trendline and then the Jan high thereafter.
On June 30 I suggested the DTO might be worth considering as oil was forming a double top. I took a part position in the DTO on July 1 as the low of June 30 was broken in oil. I am looking to add to that position on any retracement in oil back to the 64 to 65 area. I don't think we should see oil back above 66.50+- and I have raised my stop on DTO to 74.30, just below breakeven on this trade.
If one were trading futures on the 30min or hourly time frame, now would be the time to take at least partial profits for sure. However, I am looking for oil to reach the lower targets and am willing to hold through an upward correction. The DTO could reach 110 to 125. I will take partial profits when oil hits 55 and trail a stop on my remaining position. Oil could fall lower as we have seen in gold. A retest of the Feb lows is not out of the question.
The typical seasonal pattern would call for a low in oil near the end of July. If the 50 to 55 area holds, then that may be correct. However, I am not sure the seasonal pattern is in force. I will be looking for signs of an inversion, meaning that we may see lower prices ahead until November.
Above all, the action in the price of oil trumps all other considerations, and now the trend in the price is down.
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