Let’s take a quick technical Look at Nymex WTI Oil, since the pre-Lehman Highs. In particular, the Fibonacci Retracement from peak at $147.52 to $33.22 post the crisis.
Points of Interest:
1. Our current continuation pattern with 3 lower highs and higher lows pivots around the 50% Fibonacci level, which was also the point of greatest capitulation on the downleg, Read Constance Browns book on Fibonacci analysis for the significance of this.
2. The 1st Support at the lowest inflexion point RL1 and the 2nd lowest swing low just ran or was just supported (RL2) prior to $75.00 – The Law of round numbers at work.
3. The Breakout to the upside, the slightly more likely forthcoming move of momentum, in my view, will trigger on the Hunt Volatility Funnel (HVF) at $100.43 [What is a HVF? The HVf explained – http://www.youtube.com/watch?v=lQruPQihupM ] . This too is just a technical run of the key $100 level the most pyschological of oil levels.
4. The Axis of the pattern the Key level of Significance [Midpoint $92.20]
Weekly view of WTI Crude from 2007 – present
5. HVF Theory says enter on a Buy Stop at RH3 $100.43, Loss stop $84.03 – Target $132.00 to catch a fast moving breakout on what is known as a ‘Just Time’ entry, designed to see a trade entered with and impulsive candle taking the trader in.
We have had good HVF performance before, here are just a few of the bigger time frame examples
Here is my call for shorts at the last RH2 point some 10 months ago at the RH2 level of a $110, After HVF2 made its $110 target from a $100.00 break level. The short was on and ascending wedge trigger and the break of the previous Funnel on HVF 2 was the longer run bear call.
Ascending wedge break down.
http://www.youtube.com/watch?v=5geUmclwIRc
Let’s take a closer zoomed in Daily view of where we are now.
What is interesting here, is the confluence of price behaviour around our 50% Fibonacci level and again at a round number at $95.00 serving as a kind of neckline on our last swing high.
Note also that a swing low on a bear flag break may have just triggered (blue dashed line possible prediction). For those who are bullish [Most of us on what on balance should be a continuation pattern on a recovery trend] ‘break and Entry trades may be feasible with much shorter distances to the stop if we approach the $85 level, remember the law of round numbers.
Also, I have shown the foundation low of a possible bear flag low at the 50% fibo, we may have just broken out of this to the downside, pointing to a run lower. The target for the flag is before our Planned Stop at RL3 at $84.03.
But I tell you what I want, what I really, really want
Patterns within patterns
I would like a Primer pattern please Mr Market.
This is a smaller and tighter secondary set up within the funnel of the larger one and far more common than may be expected, as the whole set up is also an ironing out of Volatility to a relatively stable resting level before, the sudden re-emergence of the volatility.
Fundamentally this could be triggered by a new war initiative in the Middle East, or a substantial increase in Quantative Easing, or other supply restrictions.
Whatever the reason, we could have a much tighter initial entry at the smaller lower RH3on the Primer set up with its far tighter Loss stop level ( the red line), yet the Target of the primer set up triggers the RH3 of the larger Daily Timeframe set up as circled in red, so we roll the target onto the larger set ups target at $132, welcome to Macro Risk to Reward Ratio’s.
In the modelled possible outcome drawn below we could be Long from $94.00 with a stop at $92.00 yet be looking for $132.00 . This hypothetical case would see a $2:$38 or more simply a 1:17 R:R.
The market wants to give us gifts too often we don’t notice them, ‘Scenario-casting’ like this opens your awareness to the opportunity in a pullback such as the possible bear flag just triggered. Instead of frustrating us, or delaying us from our ‘rightful’ forthcoming profit, perhaps it is offering the observant a big gift.
A lot more could be written on this market, Brent had broken early and recently had one of the largest premiums over WTI, it is also a more relevant standard for most nations. However it has since weakened see below, maybe its pre-emptive move and stretch in premium over WTI need clawing back.
Gasoline is in an HVF breakout and is a related energy market.
A number of Oil and Oil Service stocks, if anything are further advanced in their possible progress in similar break outs, possible with the increase in investment flow into equities.
Here is a link to older posts detailing a number of well set up stocks, such as Afren, Huntingdon, Amec…etc..
http://themarketsniper.com/break-outs/shares-stocks-global/shares-uk-ftse-100-250/oil-services-shares
If you would like to find out more about Fast Moving Break out trading, I run a HVF Theory 3 month program, Premium Blog posts where you can follow my actual trades taken, and a basic free option is also available if you register www.ThemarketSniper.com, and email for next program details on email: Francis@TheMarketSniper.com