Crude Oil Moves Towards Major Technical levels

  • Posted on: July 24, 2010

The above chart was a daily chart for August. August expired this week. Unfortunately, I am away for the weekend and can not access my charting software. On Monday, I will up load a chart covering the new spot month, CLQ, August.

Be that as it may, this symmetrical triangle formation is a powerful indicator. Again, I tend to lean toward the simplest, purest chart formations when looking for moves to either go with or to fade. This chart gives a graphic representation of how a trend-line acts as a resistance area. The upper trend line was tested 3 times in the past 5 weeks of trading. It was almost tested a total of 5, but the last two rallies stopped just short of a clean trend line bump.

A solid breakout above that trend line, along with a settlement above that trend line, is a signal to get long. Not to say that that resistance line will not become support. In other words, there is a high likely hood that after the initial settlement above that trend line, that trend line will continue to act as 1) support level, and 2) a target for remaining bears to shoot at pushing below.
In fact, the most vicious and volatile trading very often occurs around trend lines such as these because both bulls and bears are cognizant of the trend line. This illustrates how markets work. There isn’t someone in Washington, sitting at a table, drinking Evian Water and eating finger sandwiches who is magically determining price levels. The markets do it themselves. Its called price discovery.

Bureaucrats don’t like markets, precisely because they are messy, violent, and unpredictable. They typically lean towards trying to control the volatility of markets. That, in my opinion, is like trying to herd cats. An interesting proposition, but in the end, the cats end up where they are going to end up.

As a trader, however, you have to embrace that the market doesn’t really care about your opinions, how much you paid for your research or your computer programming on your trading system. Charts give us a graphic representation of what all the combined opinions of bulls, bears, speculators, hedgers, etc. etc. think about the market. Unlike bureaucrats, however, market participants actually have skin in the game. Their gains or losses are a daily report card as to the soundness of their analysis and decision making process which led them either to sell into the rally, get long with the rally, or sit out and wait for a more clearly defined opportunity.

This triangle chart formation above is just such a graphic representation of price discovery in action.

A settlement above that trend line, suggests we should have a rally to the upside. Classic technical analysis suggests that the height of the rally corresponds directly with the width of the base of the triangle. In the above chart, a settlement above 78 would be bullish. The rally, theoretically, should be 12 dollars. How did I get 12 dollars as a target?

The base from 69 to 81 appears to be 12 dollars. Extend the trend line back and it co-incides roughly with 81. The base of the other trend line is down at the low there at 69.

If the break out comes at 78, then just add the width of the base, in this case 12, to the area where we broke out. This suggests an upside target at 90.

If, however, the upper trend line was to hold, and the market started trending lower, then we would have a down-side target calculated exactly the same way…If, for example the price action settled below 71.50… then you would subtract 12 from 71.50 and the downside target would be 59.50.

Either way, a powerful move out of this triangle, gives us a clear signal… A signal to follow. You’d follow the signal, but like all other trades, you can’t get into it demanding that it will unfurl the way ‘you think’ it should. If you are wrong and the market tells you that you are wrong, get out and re assess.

Successful trading, like a friend of mine reminded me of yesterday, is more a function of discipline than any thing else.

Good Trading