Crude Oil (WTI) and Silver

If you perused yesterday's FT, you would have across an interesting report on Oil titled "Oil demand falls for first time since 2009". In short, demand fell in the USA and EU but rose in Asia. However, rise in Asian consumption that was not enough to offset the slowdown in developed world. More importantly, Asian consumption was not that strong either with Chinese oil imports slowing. Base case is a small rise in demand in 2012. Worst case flat growth if global GDP stalls. Overall, International Energy Agency is worried about downside risks to the global economy and to oil demand. However, while demand for oil is sluggish/falling there are geopolitical risk (Iran/Hormuz Strait) that are keeping oil strong. So, oil market seems finely balanced on fundamental side.

On the other hand, charts are telling me that we are about to have a big move which has a great potential to boost P&L when traded sensibly. Daily chart is showing an Ascending Triangle with ascending trendline and 50MA coming right below current price. So, bias is bullish unless proven otherwise. A daily close above 103.35 will confirm the bullish trade.

But when you zoom in to 4H chart, it however looks ready to rollover. Oil broke through a small trendline, tested and fell further and now looks ready to accelerate down. So, get ready to short in case it breaks down through this green line (blue on daily chart). Stops should be at $101.00

Yesterday Silver broke through the downtrendline (daily chart not shown but you can see a green line on 4h chart) but finished the day with a Doji. It is testing the trendline as I write. On this chart you can also see a Bearish Wedge. So, be prepared for a short as well. If short tirggered ona break below the rising trendline, stops should be at $30.60

 Good luck out there

P.S. Short EURUSD at 1.2983, then cover at least on 50 pips profit, then reverse/long plan so far is working. If you bought at/around 1.2910 as suggested, put the stop to breakeven or if adventurous at 1.2887.

More trade ideas

Euro took out .12910 resistance and looks likely to close above this level today. Next target is the next resistance at 1.2983. Overnight, buy the dips is my plan. Fundamental news-wise, if Greece can not agree with its creditors, expect broad risk-off and the fall in EUR. If this happens, than I say markets are giving you a chance to buy euros from lower levels.

In my earlier post, I mentioned that to play long GBPUSD, I need to see a daily close above 1.5422 which it duly did. There is a daily swing high at 1.5500 and a daily downtrend at 1.5518ish. So, expect this pair to stall around 1.5518 area.

Advance in Euro and Cable is coming at the expense of Loonie and Ozzie.

Loonie broke to the downside form its symmetrical triangle. The width is 700 pips which gives a minimum target of approximately 0.9500. Support at 1.0074 held today but I am not sure it will hold out for long. If it rallies back above broken trendline, then you get a chance to re-short at better levels. Daily close below 1.0074 is needed to see downside acceleration Expect support/upside bounces at 0.9900, 0.9790 & 0.9755.

Ozzie has yet to break out from its symmetrical triangle now at 1.0460. So far it is struggling at a very significant resistance at 1.0425/40

By the way, today Nasdaq100 closed at 2441 with July 2011 high now left behind and which is almost 11 year high (Feb 2001). Dow Jones Industrials also closed above its downtrend

EURUSD update

In my previous post, I argued that the Euro may go all the way down to 1.26. Well, it came down 25 pips short of that target. Anyhow, the intermediate down trendline (IDT) is broken and the near-term future is looking up for this pair. Overall, this pair may move as high as 1.3175 but keep in mind that when trendlines are broken, the security may simply consolidate instead of rallying. In other words, it may fail to go past 1.30. This is the risk to be aware of.

The road ahead is fraught with obstacles. There are three very strong resistances that stretch back to 2009. As you can see, in spite of their age, they acted as a strong support on the way down. Now, you can expect them to act as strong resistance on the way up.

Second, according to the COT report, there are record amount of Euro shorts out there. So, at least part of this move, if not most, can be attributed to the short squeeze. I think the squeeze ain't over yet. Therefore, the first resistance at 1.2910 is unlikely to hold for very long.

Strategy: it is safer to play longs especially putting on longs during dips. Longs on breakouts can be difficult to trade though. One way to play the long side is to buy the pair when it comes back to test the IDT. Another way, if you are conservative: wait till it tests the IDT, then buy as the pair rallies back up above previous/recent swing high. As I write, the recent swing high is the 1.2910 resistance. Alternatively, if you bought at a test of IDT, you ADD to your position above previous/recent swing high.


Once long, the outline of a plan looks as follows:
I am expecting back and forth action between resistance lines with an overall upmove, so the plan essentially involves buy low/sell high and vice versa. Thus, close your longs once the pair hits the next resistance at 1.2983 (I am assuming that EUR breaches 1.2910 resistance). Then reverse/short - 50 pips profit target is achievable. Then, reverse/long at or above 1.2910 (I assume it holds) to play for the possible breakout above 1.2983/1.30 towards 1.3175. At 1.3175, if seen, you short again and this time downside move should be more than 100pips if not more? Keep in mind, the whole correction may actually top at 1.2983/1.30. I will update as we go along.


Alternatively, observe cross rates: EURGBP, EURJPY, EURCAD, EURAUD and EURNZD. You will see good action in those pairs as well. In particular, I like EURCAD and EURAUD longs.

Currencies and risk in general at a make or break point.

If you are into seasonalities and cycles, then equities should dip from tomorrow into this Friday and possibly Monday.

According to the Stock Trader's Almanac 2012:
Tue 17th: Dow up 14 of Last 19,
Wed 18th: horrible since 1999, Dow down big 9 of last 13
Friday 20th: Dow down 10 of last 13 with big losses (over 1%)
Mon 23rd: also very likely to be down day.

Anyhow, with currencies at a break or make points, I wonder whether we should fade current USD sell-off and go long USD instead into Friday. At the end of this week, then we reverse and go long risk into Feb, which is seasonally bullish. This is just an outline of a plan. So, I will need to watch, whether currencies support my plan. At the end of the day, I will trade what I see.

Loonie is testing its daily downtrendline. The close below is bearish. It does need to overcome resistance clusters at 1.0074 however to give the final confirmation.

AUD is also testing its daily symmetrical triangle. Great chance for a low risk short. But you can see it has broken out of the bullish smaller ascending triangle within our symmetrical triangle. So that you are aware.

This is a channel the Euro is in. It is visible on a daily chart as well. All it needs to do is close above it. Unlike Loonie and Ozzie, it is not yet testing the downtrendline.

Finally, another laggard: GBPUSD. Broke down from bearish descending triangle and now testing the bottom. Even if it closes above it today, stay away till a daily close above 1.5422 is my policy. It is just too many clusters of resistance.

The day is not over yet, so I will be looking for reversal candles and non-confirmations on RSI to get long USD. Reward to risk is high with stops nearby. :)

EURUSD targeting 1.26

I hope all of you had a Merry Christmas and a fantastic New Year’s eve celebrations. I will you all health (paramount), lots of luck and profits in 2012.

Now, back to business:  EURUSD is selling off. See news here and here. Hungary is also blowing up btw.

This is a longer term chart of EURUSD. You can see that Major Up Trendline  (middle blue line) was broken in September 07 and retested in October 26^th . I subsequently drew another Major Up Trendline connecting June 03 2010 bottom to October 03 2011 bottom. Following a fake break on October 24^th, this trendline was decisively broken on December 11 as well. I am repeating the obvious but the Primary Trend is down and the rallies should be sold.

Green horizontal lines are Fib retracements:  61.8% retracement at 1.3046 is left behind but on January 2^nd it was re-tested and successfully rejected.  The next Fib support level is 78.6% at 1.2535. The blue horizontal lines with EURUSD levels on them are support areas based on 2010 and early 2011 weekly swing lows. The next support area comes at 1.2609 which is over 70 pips above 78.6% Fib retracement. In short, you can see that we have an air pocket between now and 1.26. If EURUSD closes today below 1.29, then we should be aiming at 1.26.

The only fly in the ointment is non-confirming RSI which at this point I am willing to ignore. Like in Sep to Oct 2010, it is closely hugging 30 level which for all intents and purposes says we are in a downtrend.

There is another analysis I liked on Zerohedge. According to it, on balance we are likely to see a bounce before plunge.

Oil update

WTI has exceeded my entry levels...licking wounds is the phrase here.So, now the level to watch is $96.60/70 200MA on the 1h chart is at $96.68

On the 4h chart, 50MA is $96.65. This is another reverwsal area. Fib resistance is at $96.86 (not shown).

Conservative traders may also use $94.91 swing low on 1h chart to enter shorts. Hourly close below $94.91 will give first confirmation that it is coming back down.

P.S. If it is Santa Claus rally lifting oil, then a test of $97.5-$98 is likely. 

Trade of the week: Crude Oil WTI

In my earlier posts, I did a couple of entries on crude oil and so far oil is behaving as expected (probably it won't after this entry). So, I thought I update you all about possible trades in this commodity.

This is a monthly chart. I think Netdania uses continuous futures data. It is too early to say anything about the candle. The important bit is the MACD which is turning down.

On a weekly chart below, major uptrendline was broken in August indicating the change of the major trend from bullish to bearish. You can also see how crude came back to test the trendline, kissed it goodbye and now seems to be accelerating to the downside. One interesting observation is that it made a flag (2 weeks), made a new high from the flag only to reverse. I like such failed flag patterns. They work well. In general any failed pattern works well since a lot of people are caught on the opposite side.

MACD is turning back down from zero level which is bearish. On the other hand, weekly RSI is about to test its 50 level; make or break here. My bet is that will pause first (small bounce) but then break below 50 level. Test of the second swing at $76.30 or the trendline aproximately at $80 is my main scenario.

Daily charts gives us even more clues. We have confirmed double top (Adam & Eve) with a minimum target of $87; broken 50 and 200 day moving averages (not shown) and a broken uptrendline (green line). Crude tested the uptrendline and was successfully rejected.  MACD is accelerating down but Friday was a doji day which makes me think we might or even likely to test the bottom of the double top.

Trade 1: 
If we have a bounce, then watch $95 to $95.80 for a short entry. This is where it should reverse.  Also, pay attention at a daily RSI. It is turning up and it should get rejected at 50 level ($95 to $95.80 range) or just at the bottom of the circled zig-zag. First target is $90. Second target is $87 (double bottom minimum target). Third target is $80ish (weekly trendline on the 2nd chart) and the final target is $76.30 swing low. In general if crude closes below that weekly trendline at $80ish, then it is likely to fall way below $76.30.

This trade is off if it closes at or above $98 on a daily basis because we might be looking at a typical A-B-C consolidation formation before crude goes higher. Not my preferred scenario.

Trade 2:
If it is not going back up to test $95 area, then sell below the low of the last week.  Targets above apply.

Trade 3:
$90,is a major support. You can see how price tested this area 5 times before. Herein lies the rationale for a short term (1 or max 2 days) counter-trend long trade with a tight stop loss.To time it better, you may need to go to 15min charts. I believe it will be a very high reward to risk trade.

Below is the 4h chart. You can see MACD appears in the process of crossing up while RSI is showing small bullish divergence. The last candle is inside candle. Breakout to the either side (up?) from highs/lows of the previous red candle will give a clue as to the short term direction. All this supports the daily doji.

 Good luck.

P.S. One of earlier posts was on AUDCHF which closed above daily right angle triangle. The stop loss on this trade is at 0.9300 as per this post. But lately this trade is going nowhere and instead we have a a clear right angle falling triangle (bearish) on 4h chart. If it falls down out of it, a) then the daily breakout will turn out to be a fake,  b) also, minimum downside target is 225 pips from 0.9312 but most probably it will fall to 0.8900. Therefore, I would put a reverse sell order at 0.9299.

A chart that makes me go hmmmm?!

This is the longer term chart of VIX. The first spike is the October 2008 low in equity markets. The second spike is the August 2011 low. If someone showed me this chart and asked me to guess where S&P500 would be last August, my totally wrong answer would have been "gee,that looks like 666 bottom on S&P500."

Closer look reveals that VIX made a lower low and investors appear getting sanguine. Judging by it, S&P500 should have been or must close above 1,285, its October 26 swing high. But so far it has not! One of them is wrong. Soon we will find out if it is VIX again. But if so, is VIX losing its importance as a confirmation signal?

On the other hand, Merrill Lynch US High Yield index seems to be a good advance indicator on S&P500 these days. I posted this chart back in early November when I highlighted the divergence and argued for the downside breakout from the Pennant. 

Currently, both S&P500 and the credit index seem to confirm each other.