Discussion of Crude Oil technicals- emotion-free technical conversation...

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gangof4

thought i'd attempt to start a thread on CL dedicated to technical analysis, since most CL threads consist of baseless opinion/emotion and justification of ones real or imagined positions in CL.

ideally, if this thread gains any traction, i'd like to see commentary not only on CL technicals, but also those of oil drivers (ie: currencies, for one).

yes, there are geopolitical forces that can and will trump any t/a if the event is significant enough. i do believe these events warrant discussion in this thread, but only as they pertain to technicals (ie: focusing on how CL price action reacts to bullish or bearish news).

my skin in the game:

i am a technical trader who, for some inexplicable (and ill-timed) reason decided to pick a top in CL and shorted @ 124. rode it like an idiot with no discipline to 135, took 1/2 off when it went back down to 126 and continue to hold the short now until this trading range is resolved. so, yeah... got my dick handed to me for ignoring the charts- part and parcel as to why i have started this thread.
 
20 june:

curious as to whether others view today's action as bearish. we had the kitchen sink thrown at CL: 2 attacks in Nigeria, Israel practice bombing Iran war games, Iran talking tough in response, talking heads calling for $250-500 oil, Chavez yacking, the dollar getting torched, talk of China's refiners buying more crude with new improved margins, some more north sea chatter.... pretty much everything but locust, and CL failed to spike any higher than 137.50 and then sold off to where it is currently $2.75 below that peak.

in my analysis, even with a $2.20 rise, i view today as bearish. anyone agree? i think this sets up next week quite well and expect the trading range to be resolved, one way or the other, in short order.

my position:

as we all know, we are in a range. this range is so obvious that i think the entire trading world is ready to go long above 140. a move down will be slightly less clear cut, as, depending on how you draw your trend lines, which MA you use etc... could be anywhere from 131.33 down thru 130. a break above 140 that is anything more than a short lived probe will cause me to cover my short and go long. a decisive break below 130 and i will likely add to my short with a target of 122.50 where i would reduce my position (tgt is really 121.61, but i exit part early to make sure i turn paper gains into real gains).
 
I'm looking to get short CL sometime next week. I still am debating how I want to play it. I also want to wait for some shakeout from this weekends oil summit.

I'm looking at playing this with options and getting a net credit with a chance of major upside if oil does indeed fall. If oil rises but not that much, I will be better off than just being short.

I've been looking at buying the Dec 110P for $4100 and financing it with the sale of the Dec 170C for $4800 or the sale of 2 Dec 100P for $2180 (each).

Here is my view of the crude on a weekly basis, I see RSI divergence.
 

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I think the only play here is long term (1+ year time horizon), and one must have the patience. Any short term trade is purely speculative and a gamble.

Below is why i think oil will eventually fail....dramatically.

1) On a macro level, oil unlike a stock (ie: google) is heavily linked to political and social aspects of the world. As such, a high price will have major impact across the globe for the common folks so to speak. For this reason alone, it will not and cannot just keep gapping up LONG TERM(like a hot stock) as we have now.

2) Interest rate goes up, usd strengthens, oil falls. That's pretty much a non-debate. Fed is starting to turn to inflation now, although the current credit crisis is preventing them from raising rates short term. Again long term, rates will be raised, no question there either.

3) Common sense, take a step back and look at the big picture - the 10 year historical chart of the USO below. Such a run up must come down. Currently MA20/50 is heavy support for the uptrend.

4) Below are the reasons oil is so high and why it may continue higher
- global unrest / supply strain /demand
- speculation and major push by the big players such as goldman/morgan.

5) I dont know when or how long the big players will push oil before they exit, or when the political unrest will die down. Noone knows how high oil will go before the fall.

What i do know to a good certainty is oil WILL fall. It's not a question of if, but when. So in order to play this, taking into consideration it may very well go to 150 or 200 before the dramatic fall. I made the following long term diagonal spread play:

-bought the leap 2010 109 PUT (this ensures my max loss is limited)
-sell the front month (july 2008) 99 (-10pt) PUT (the premium gained will offset some of my long leap put losses if oil continues to move up. I will reduce my cost basis each month until oil start to come down, then if it breaks my front month strike i will close out the entire position taking the spread+premiums as profit, if it doesnt come down pass my front month strike, i will continue to lower my strike following the price for the front month contract until i feel a bottom is reached.).

any short term play is purely speculative, noone in the world can predict oil right now, no matter how good a technical or macro trader you are.

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Quote from gangof4:

20 june:
my position:

as we all know, we are in a range. this range is so obvious that i think the entire trading world is ready to go long above 140. a move down will be slightly less clear cut, as, depending on how you draw your trend lines, which MA you use etc... could be anywhere from 131.33 down thru 130. a break above 140 that is anything more than a short lived probe will cause me to cover my short and go long. a decisive break below 130 and i will likely add to my short with a target of 122.50 where i would reduce my position (tgt is really 121.61, but i exit part early to make sure i turn paper gains into real gains).
More...

The problem is you cannot trade oil based on normal technical like you do with stocks - assuming all risks are factored into the graph and it will tell you all. For oil, any event, for example the weekend meeting could overwrite all your technicals even if the analysis are correct. There are just too much political focus to make a bet based purely on technical for oil.
 
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