Last week, there was an example of why setting and sticking to stops, something I frequently stress, is so important. On Friday, I wrote that it may be worth trying a very risky, long WTI trade given the proximity to the previously rock-solid $42 support level. If you did so, I hope that you read all the way through that piece and set a stop at $41.50. That was an important element of the trade, and would have been triggered, forcing a small loss before the collapse over the weekend. It is a classic case of a time when staying disciplined enough to hit a stop-loss turns a losing trade into something that feels like a win.
Whether you did or not, though, the massive gap that occurred over the weekend pushed WTI futures through that support and into a new range and the next question is, as it always is, where next?
The first thing to do is to identify what that new range might be.
Monday’s historic collapse overshot the mark, as these things are wont to do, and hit a low of just below $28 before bouncing back. That bounce was also exaggerated, with WTI reaching just over $36 before settling back down. That leaves us with an effective range for now of $28-36.
As I write, the market is trading at $32 and change, right in the middle of that range.
The first thing to understand when trying to assess what next is that other than for very basic, broad-based things like identifying a possible range to work with, technical analysis is…