Crude Oil Update

In early May, I wrote that I thought the bounce in Oil was over, as most of my upside price targets had been met. Price has gone nowhere since, with a lack of follow through on the part of both buyers, and sellers. Admittedly, I’ve been bearish on oil this past month, and depending on the way you’ve played that theme, that may have been the right call. For example, US energy stocks and correlated markets like Russia, have sold off and provided swing-short opportunities. Crude Oil futures however, have held up quite well, thereby leaving you about flat if you played this thesis straight up. With that, I took the some time today to see what’s going on in this market and if there are any opportunities for a trade after this month of congestion.

First off, I think it’s important to look at the backdrop that helped spark the March rally off the lows. Beginning in March, we were entering the best seven month period of the year for Crude. Today, we’re still within that period, but the average performance in June and July isn’t quite as stellar as tends to be in March and April. Additionally, commercial hedgers were reducing short positions in March, hitting multi-year highs in terms of long positions, but have since began adding to short positions again. Lastly, in March, public sentiment was at 13 year lows, but we’ve since seen optimism move higher with price and come well off the lows.

Today, sentiment and seasonality do provide a slightly bullish tailwind for price, but overall, it’s not nearly as big a factor as it was at the March lows.

Looking at price on the weekly chart, it’s clear that Crude is in a structural downtrend, as shown by the declining 200 week simple moving average. Earlier in the year prices successfully tested, and confirmed, the uptrend line from the ’03 and ’09 lows, while momentum positively diverged. This, along with extreme sentiment readings and a strong seasonal backdrop ignited a nice rally off the lows. Prices are now consolidating above key support in the $55 area, which bulls want to see hold, or we risk a retest of the lows.chart

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15% Upside In OJ Futures

In a frustrating market where the major averages chop around, taking traders with them, many market participants are looking for non-correlated opportunities. Luckily as a technician I can look at any and all liquid asset classes from around the world, and I most certainly do. This week one of the areas I’m seeing opportunity on the long side is in Orange Juice futures.

Looking at the weekly chart, prices are finding some footing at the 161.8% Fibonacci extension of the Oct-Dec ’14 rally, which also corresponds with long term support in the 105-108 area. What’s important to note is that the declining 200 week simple moving average indicates that the structural trend is indeed lower and that this trade is merley a counter-trend play on mean reversion. The reason I like it here is because if prices are going to get going from anywhere, it’ll be from here with momentum positively diverging on multiple timeframes.

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Short Russia Trade

Thesis: Oil is going lower, bounce in correlated sectors / foreign equity markets / currency markets should be faded as they reach their downward sloping 200 day smas.

Vehicle: RUSS (3x Short Russia)

russOriginial Plan: Own it against the April lows.

RUSS
Entry 6.7
Stop 6.3
Target 9.2
Shares 1
Profit 2.5
Loss 0.4
Risk/Reward 6.25

Actual Entry:

RUSS
Entry 6.78
Stop 6.3
Target 9.2
Shares 1
Profit 2.42
Loss 0.48
Risk/Reward 5.04

End Result:

Symbol Date Entered Entry Price Date Exited Exit Price Profit (Loss)
RUSS 5/6/2015 6.78 5/11/2015 6.4 -5.60%

Trade Notes: The entry was fine, though it could’ve been a little lower had I been more patient. I should have cut the position Friday 5/8 when there was a lack of upside follow through.

Lesson: Cut the position if it’s not working, even if it hasn’t reached your initial stop loss.

Natural Gas Long

Thesis: Mean reversion toward the 200 day sma at ~ 3.30.

Vehicle to play the theme: UNG

Original Plan:

Entry 14.05
Stop 13.8
Target 16.5
Shares 1
Profit 2.45
Loss 0.25
Risk/Reward 9.80

Actual Entry:

Entry 14.15
Stop 13.85
Target 16.5
Shares 1
Profit 2.35
Loss 0.3
Risk/Reward 7.83

End Result:

Symbol Date Entered Entry Price Date Exited Exit Price Profit (Loss)
UNG 5/8/2015 14.15 5/10/2015 13.9 -1.77%

Trade Notes:

The thesis was correct, but the trade execution was poor. I chased the entry rather than waiting for a pullback, which caused me to keep my stop too tight in order to keep the risk/reward high enough. Had I bought it closer to support near 13.80-14, I could have put my stop farther below the trendline below where my thesis was no longer valid.

Lesson: I need to be more disciplined about my entries so that the capital at risk meets the threshold outlined in my plan. If it moves without me, no worries. There are plenty of other trading opportunities out there.