Given today’s sharp reversal in price and first follow through we’ve seen in quite some time, there is bound to be a lot of talk about oil’s action over the next few days. Today’s action was constructive, so much so that I almost put on a half a position but decided that I did not see enough of the factors I look for in my process to put on a position. Regardless of whether or not I’m involved, it is an interesting market to watch.

Lets take a look.

Weekly Chart:

1. Prices are 95% below their 200 week simple moving average.

2. Prices put in a nice bottoming tail, thus far, off long term trendline support.

3. RSI has not put in a positive momentum divergence yet, which I’d like to see.

crude weekly

 

 

 

 

 

 

 

 

 

 

Daily Chart:

1. Prices are 76% below their 200 day simple moving average.

2. Prices showed follow through from Tuesday’s hammer, breaking and closing back above the previous pivot low and trend line resistance for the first time in 6 attempts.

3. Prices confirmed a positive momentum divergence, after a number of failed attempts in past months.

crude oil daily

 

 

 

 

 

 

 

 

 

 

Sentiment & Seasonality:

1. Sentiment continues to sit at lows not seen since 2002, according to sentimentrader data.

2. Commercial hedgers continue to hedge with 300k contracts short but are off their most aggressive short position of 500k contracts in July of ’14. This data continues to suggest that commercial hedgers are leaning towards lower prices, though to a lesser extent than the past few months (for obvious reasons).

3. In terms of seasonality, January is the third worst month of the year for crude oil, but February has historically been the start of a multi-month period of seasonal strength.

Why I Didn’t Buy Today:

Today’s action was constructive and probably got a lot of traders I know long, or looking at the long side of crude. We certainly saw something that hasn’t happened in months and the risk on the trade was very well defined. For the way I would have managed a trade here, the risk/reward would have been roughly 4.5:1, but I felt that without the weekly chart or seasonality tailwinds present, that I’d best be served waiting for a longer term move to develop. Additionally, if this is the start of a long term bottom (which nobody knows if it is), there will be plenty of opportunity get involved without having to bottom tick it today.

What I’m Looking For:

First off, it’s only Wednesday, so I’d like to see this week’s candle close out near the highs of the week (or at least above last week’s lows). Additionally, I’d like to see follow through next week as we’ve seen these bottoming tails before, but all have failed to continue higher the following week. Also, I’d like to see a positive momentum divergence develop on the weekly chart, as the one on the daily confirms. If / when these things occur, I’m sure there will be plenty of chances to buy pullbacks or breakouts to keep risk well defined.

Maybe I missed a great opportunity today, maybe not. That’s not something I have time to worry about. It was a good setup, but it did not fully fit my process; therefore I have to wait on it.

As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can.

What I’m Seeing In Oil