1 dayJapan Nuclear Regulator Greenlights Radiactive Water Release From Fukushima
2 daysChina To Offload 2 Million Barrels of Iranian Crude Despite Sanctions
2 daysEx-German Chancellor Could Be Sanctioned Over Rosneft Ties
2 daysGasoline Prices Top $6 In California, $9 In Parts Of Europe
2 daysOil, Gas Employment Will Take Five Years To Recover From Covid: Rystad
2 daysInsurers Are Suffering Major Losses Due To Climate Change
2 days"Fossil Fuels Are A Dead End," UN Secretary-General Says
2 daysRussia Increasingly Using Own Oil Tankers To Boost Shipments To Asia
2 daysSaudi Oil Revenue To Surge 66% To $249 Billion On High Prices
2 daysRussia Could Halt Gas Supply To Finland On Friday
2 daysRussia's Gas Flows Via Ukraine Plunged 50% In The Past Week
3 daysAPI Reports Inventory Draws In Crude, Gasoline Despite SPR Release
3 daysLibyan Oil Deadlocked As Clashes Force PM-Designate Out of Tripoli
3 daysPutin: Europe Committing “Economic Suicide” With Energy Sanctions
3 daysUnited States To Release Venezuela From Some Oil Sanctions
3 daysU.S. Set To Suggest European Tariff On Russian Oil Instead Of Embargo
3 daysHungary Says Complying With Russia Oil Ban Would Cost It $811 Million
3 daysNew Trading Firms Replace Oil Majors In Business With Russia
3 daysIraqi Government Prevents Chinese Parties From Buying Into Oil Deals
3 daysSaudi Aramco Considers Listing $30 Billion Trading Arm As Oil Prices Soar
3 daysRussia Becomes One Of India’s Top 5 Oil Suppliers
3 daysShell’s Brazil Wells Come Up Dry
4 daysShale Pioneer Harold Hamm Slams Biden's "Failed" Energy Policies
4 daysOil Prices Surge Past $113 As Shanghai Signals End Of Lockdown
4 minutes"Natural Gas Trading Picks Up Considerably Amid High Volatility" by Charles Kennedy - ...And is U.S. NatGas Futures dramatically overbought at the $6.35 range?
8 minutesHow Far Have We Really Gotten With Alternative Energy
12 minutes What Russia has reached over three months diplomatic and military pressure on West ?
10 hoursGREEN NEW DEAL = BLIZZARD OF LIES
2 daysRevisiting: "The U.S. Grid Isn’t Ready For A Major Shift To Renewables" from March 2021 by Irina Slav at OILPRICE
5 daysHow cheap Chinese tires might explain Russia's 'stalled' 40-mile-long military convoy in Ukraine
2 hoursWhat China is Learning from Russia's War in Ukraine and its Consequences
13 hoursFailure To Implement Russian Oil Ban Could Send Oil Crashing To $65
3 daysNatural Gas is the Cleanest and most Likely Source of Energy to Fuel the World.
For any trader, a perfect and clear chart pattern is a wonderful thing to behold. Even those like me who understand that technical and chart analysis has its limitations and will always be overpowered by shifts in fundamental factors finds it difficult to resist the obvious trade in such circumstances. The chart for WTI futures right now shows just such a pattern. In fact, the setup is so perfect that even that obvious trade can be structured in such a way as to guard against the possibility of being wrong.
(Click to enlarge)
I am sure that even if I hadn’t added the trend lines to the above chart, most of you would immediately spot the downward sloping channel in QM, the E-Mini WTI futures contract. Since the end of April oil has exhibited volatility, but in a pattern of lower highs and lower lows that is text book perfect.
The obvious trade now that we are right at the top of that channel is to sell. Even if we don’t continue the pattern and drop to the lower trend line, a retracement back to the next support level at around $45.50 would offer a very nice profit. The problem is that, as is usually the case, there are very good reasons for WTI being at the top of the range.
The two main bullish influences are global growth and OPEC. The strong rally in stocks around the world over the last few months has opened up the possibility of increased oil demand, which would take care of the glut of oil that has kept prices relatively depressed.…
For any trader, a perfect and clear chart pattern is a wonderful thing to behold. Even those like me who understand that technical and chart analysis has its limitations and will always be overpowered by shifts in fundamental factors finds it difficult to resist the obvious trade in such circumstances. The chart for WTI futures right now shows just such a pattern. In fact, the setup is so perfect that even that obvious trade can be structured in such a way as to guard against the possibility of being wrong.
(Click to enlarge)
I am sure that even if I hadn’t added the trend lines to the above chart, most of you would immediately spot the downward sloping channel in QM, the E-Mini WTI futures contract. Since the end of April oil has exhibited volatility, but in a pattern of lower highs and lower lows that is text book perfect.
The obvious trade now that we are right at the top of that channel is to sell. Even if we don’t continue the pattern and drop to the lower trend line, a retracement back to the next support level at around $45.50 would offer a very nice profit. The problem is that, as is usually the case, there are very good reasons for WTI being at the top of the range.
The two main bullish influences are global growth and OPEC. The strong rally in stocks around the world over the last few months has opened up the possibility of increased oil demand, which would take care of the glut of oil that has kept prices relatively depressed. That is especially so if the production cuts agreed by OPEC and a few influential non-OPEC producing countries are adhered to or even extended. Over time it is reasonable to expect both of those things, particularly the prospect of increased demand, to lend support to oil.
The short-term bear case, however, does not rest solely on the chart pattern. Increasing worry about the effects of Fed tightening and the tapering of QE by the ECB have stalled the stock rally for now, so it appears that the degree of confidence in global growth is diminishing. From a more oil specific perspective too, there must be some doubt. The OPEC led meeting in St. Petersburg last weekend produced a lot of supportive words, but the buzz going in was all about some nations’ failure to observe production caps. The history of OPEC and the current level of mistrust among some prominent members of the cartel suggest that that problem is not going to go away.
So the fundamental factors look to be well balanced, which brings us back to the technical pattern. Range and channel trading are the bread and butter of a trader’s method, but at the extremes there are serious risks that must be accounted for. Because selling at the top of a channel like this is so obvious the trade can easily become crowded, and when it does any break out above the level that can cause a sharp move on up. While that poses a danger, though, it can be used to protect your trade. Setting a stop loss to cover against a breakout would be standard operating procedure for any trader, but making that order for double the size of your original position in a situation like this is a good tactic. That way, if the breakout does come you can use the exaggerated nature of the move to recover losses from the original position.
There is a common misconception that success in trading always depends on getting the next move right. In actuality, understanding that that is not always possible and devising a strategy to protect against getting it wrong is just as important. WTI futures currently offer an opportunity to do that, so a small short position at these levels with a double sized stop just above $50 represents a potentially profitable trade with controlled risk, and that is, by definition, a good trade.
To access this exclusive content...
Select your membership level below
COMMUNITY MEMBERSHIP
(FREE)
Full access to the largest energy community on the web