Monday, December 26, 2011

Crude Oil (CL) Weekly Outlook/Strategy (12/25/11 - 12/30/11)

I hope everyone had a very Merry Christmas with their loved ones! Crude's Santa rally appears to have severely damaged my bearish top thesis for the time being. Although we were looking for a bounce, I can say that a one-week move back to the top our channel was not exactly the expectation going into last week. There have been some key bullish indications taking place and will be something to keep in mind as we trade in the coming weeks. As you take a look at the charts below, please ignore the most recent candle on each, as they've been added by TOS and are meaningless at this point.

Weekly: We managed a very strong bounce off of a support confluence. The bottom of our kumo as well as the all-important 30-wk MA, resulted in a move that wiped out the prior weeks' fall. 

BULLISH indications: Chikou (red line) has now cleared prior price (noted by green oval). RSI has bounced off the 50 level. MACD, looking like a possible rollover has now firmly cleared the zero line and is headed higher. Tenkan-sen (light blue line) is rising and looks to be acting as support and the 30-wk MA is beginning to flatten out.

BEARISH indications:  We have still only backtested our channel break. Kumo is bearish, although it will flip bullish if we continue to stay at or above the current levels. 

We are beginning to see the potential for an inverted Head and Shoulders pattern setting up and technically our objective view would have to be neutral to bullish. I would flip back to a more bearish posture if we were to see a shooting star or reversal type candle on our next move back to the channel resistance.

Daily: We can see very clearly the channel that has developed. We are currently sitting at the top rail of our channel. Ideally, in the bullish scenario, we would like to see a small pullback to possibly the 97.5 area, which has been a key pivot in within this pattern. 

Kumo acted perfectly as support last week and may continue to do so going forward as it is in a solidly bullish trend. The 50dma is rising and acted as a support area as well. MACD has bounced off the centerline and a bullish crossover appears imminent. 

Chikou is currently hitting resistance at prior price. This along with our channel resistance speaks to a possible pullback this week. The major shorter term support levels looks to be 97.5 area along with 95.20 area. 

240 minute: Zooming into a better view of our channel, take a look at the volume pattern over the past 2 weeks. We saw a breakdown on strong volume which was followed by volume drying up significantly as we made lower lows. The bullish reversal occurred on stronger relative volume, and is now weakening as we make higher highs. MACD appears to be rolling over and RSI is overbought. 

On this chart we can clearly see the importance of the 97.5 area as a pivot within this channel, and how ideal it would be for a pullback here before any breakout of this pattern. I believe the 101.40 area should be a key level that needs to be broken and held in order to verify a legitimate breakout.

60 minute: The hourly timeframe shows a clear uptrend using the kumo. However, we can see the negative divergence building up as price makes higher highs and both RSI and MACD move lower.

A couple possible scenarios I will be looking for include:

A) An immediate move higher towards the 101.40 area early in the week. Followed by a pullback to our uptrend line drawn above.

B) A steady pullback towards 97.50 which would be a solid R/R buying opportunity for a break out the channel.

Finally, I will leave you with a chart of RBOB Gasoline. It has managed to hold its support level and break out on multiple timeframes through resistance and out of its downchannel. Gasoline has been the clear weak link in regards to price action in the complex and we saw relative strength from it on Friday. Thank you for reading and I would appreciate any questions, comments, feedback. Good luck to those trading this week!