Sunday, December 11, 2011

Crude (CL) Weekly Outlook & Strategy (12.11.11 - 12.16.11)

Since I've started a blog, I figured I may as well start to do a writeup of my weekly chart research / basis for intraday trading strategy of my favorite instrument to trade, crude oil. So here you a multiple timeframe analysis to give an idea as to how I will approach trading this week.

For those that have been following me on Twitter, you may know that I've been approaching crude with a "sell the rip" approach. The main reason for this is the weekly chart you see above. I am above the belief that crude has topped. It had been in a multi-year upchannel, which was broken on volume in August. This coincided with a break of kumo (cloud) support as well as an ichimoku trend change. 

Over the past 2 months, we have re-entered the kumo to backtest the channel. We printed a reversal candle  during the week of November 14th, and the channel as well as kumo resistance has held thus far. RSI also fell definitively below the 40 level which it has never done during its entire bull run.

I would admit I was wrong on a weekly close above the kumo or a failure to break and hold below the 92.80 level on a weekly closing basis.

Objectively speaking, the daily chart looks more bullish than the weekly. The near term trend has been up as is visible from the bullish kumo and we bounced off a rising kijun-sen (pink line) on Friday. We also have a rising 50dma, another confirmation of the nearer term trend. 

You can see the backtest of the bottom rail of our channel multiple times over the past few weeks, and numerous topping candles there. MACD has had a bearish cross and continues to point lower. A bearish center-line cross would be quite negative, in my opinion. The volume pattern has also clearly been negative in my opinion, where we've sold off or reversed on heavy volume, and moved higher on much lighter volume.

Strong resistance levels would be at 103.35 then 105.87 areas. Strong support would be had at 95.20 then 90.90.

On the shorter term hourly chart, you will notice we broke down out of a rising wedge on 12/5. We chopped around after this break holding the 99.90 area multiple times before definitively breaking through Thursday on heavy volume. We are currently at that critical level which may very well put a cap on this upside move. There is a confluence here with the kumo acting as resistance as well as the chikou facing the tenkan-sen and kijun-sen (noted on chart). 

If we aren't rejected here right at the open, I will be looking to short near the 100.70 area. Here we will most likely be coming up on our downtrend line along w/ another resistance area for the chikou. Thank you for reading and trade 'em well this week. As always any comments or questions are appreciated.