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  • Long-Term Equilibrium In Crude Oil Starts To Give Way.

    A Macro Technical View of Crude Oil futures:

    The two charts below are of crude oil futures from a weekly perspective. (Note the chart construction used is of continuous contracts that are of the most liquid months).

    The first (Weekly Crude Oil since 2006) shows how crude oil has seen extensive consolidation. So extensive in fact, that a smaller symmetrical triangle has developed within a larger one. This is exceptionally rare.

    But on Friday, trendline resistance (97.09) of the smaller triangle was broken by way of the end of week close above it (97.85 in the July contract).

    (click to enlarge)Crude Oil futures since 2006

    (All charts were drawn using CQG)

    Bullish technical scenario:

    The smaller, more recent triangle has a pattern magnitude of 1565 ticks (or $15.65). So theoretically, last week's close above trendline resistance would have a minimum measuring objective of 112.74 (97.09 + 15.65).

    The larger triangle has a pattern magnitude of 3769 ticks (or $37.69). A weekly close above 103.78 (trendline resistance) would have a minimum measuring objective of 141.47 (103.78 + 37.69). This weekly trendline has a negative slope of 10 ticks and will arrive at 103.68 next week.

    Bearish technical scenario:

    Given the upside breakout, the downside objective to the smaller triangle has been nullified (it's still labeled but in grey).

    However the larger symmetrical triangle is still forming. Therefore if a bullish failure were to occur and crude futures turned lower, a weekly close below trendline support at 80.41 (positive slope 6 ticks/week) would have a downside objective at 42.72 (80.41 - 37.69).

    Perfect Equilibrium:

    Now what could make this inevitable breakout so volatile is that not only has crude oil seen a great deal of range compression, but look at where this compression is taking place.

    (click to enlarge)Crude Oil futures since 2011

    The first chart shows the 2008-09 range being a high of 147.27 down to a 33.20 low - with the 50% retracement being 90.23.

    The second chart (Weekly Crude Oil since 2011) extends the trendlines of both triangles to show their respective apexes.

    Both sets of weekly trendlines arrive to form an apex that comes only about 1% (+/-) away from 90.23 - the 50% retracement.

    The more recent triangle's apex is at roughly 91.00, and the apex of the larger triangle arrives at 89.35 or so. One apex slightly above 90.23, and one slightly below ("slightly" is used relative to the weekly magnitude).

    Coincidence perhaps, but still what are the chances?

    We're seeing long and intermediate-term consolidation 'doubled' (with the nested triangles), and then transposed over a level that's a natural area of long-term equilibrium (the 50% retracement).

    What this suggests to me is that crude oil has formed as much consolidation as it can stand.

    My technical bias is bullish (65/35), but I would recommend buying longer-term volatility in either direction.

    Additionally what this infers is that extended momentum trading and/or trend following in crude oil could be just around the corner.

    Goldman Sachs Commodity Index Coiling As Well:

    Considering the high weighting of energies in the GSCI, an upward trend in Crude Oil can push the index above near-term resistance at 636.32 - 637.89 (the May high and March low respectively).

    But in the weekly cash GSCI chart below, extremely well-tested trendline resistance at 665.834 (which has a negatively weekly slope of 0.88) would await it.

    (click to enlarge)Weekly cash Goldman Sachs Commodity Index

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jun 17 1:50 PM | Link | Comment!
  • Macro Technical View: Consolidation In August Gold Futures Foreshadows A Significant Move

    August gold futures (GCQ2) has been consolidating just above a major supportive level of +/- 1525.00 (the December 2011 low was 1523.90 and the May 2012 low was 1526.70). (CQG graphics used for each chart)

    (click to enlarge)Weekly Gold Futures

    This consolidation has taken the form of a daily symmetrical triangle which has an amplitude of 106.60, and has breakout parameters of 1726.10 (bullish objective) or 1448.40 (bearish objective).

    (click to enlarge)August Gold Futures

    1448.40 = The bearish objective if a daily close were to occur below 1555.00 for Friday (note that Thursday's low was 1554.40).

    For confirmation, one can wait for a daily close below 1547.60, the June 28 low, and last low/3rd turn of the triangle pattern.

    Trendline support arrives at 1555.00 for GCQ2 (1554.9810 without rounding for contract specs) for Friday and has a positive slope of 0.7381, so this trendline will arrive at 1555.70 (1555.7191) for Monday.

    Long-term, if this 1448 level is reached, the next major supportive level would be down at the 1300-1310 level.

    1449.00 = The 38.2% retracement of the October 2008 low of 681.00 (made on the December 2008 contract) to the September 2011 high (made on the December 2011 contract). This is close to the daily downside objective of 1448.40.

    1302.30 = The 50% retracement of the same range mentioned above.

    1726.10 = The bullish objective if a daily close were to occur above 1619.60 for Friday.

    For confirmation, one can wait for a daily close above 1625.70, the July 3 high and last high/4th turn of the triangle pattern.

    Trendline resistance arrives at 1619.50 (1619.5474) for Friday and has a negative slope of 0.8789, so this trendline will arrive at 1618.70 (1618.6685) for Monday.

    1676.00 = The 38.2% retracement of the September 2011 high (made on the December 2011 contract) and the December 2011 low of 1523.90 (made on the February 2012 contract).

    1723.80 = The 50% retracement of the same range mentioned above.

    (click to enlarge)

    Gold/Silver Ratio

    Gold/Silver Ratio:

    57.43 = Bullish channel support. See attached chart.

    57.10 = July 3 low.

    Even though silver has been more offered than gold (causing this ratio's rise), that could change with gold breaking below its triangular formation.

    If this ratio trades below 57.00, then profit-taking can arise in this relationship, thereby exacerbating gold weakness.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: This was written Thursday at 3:30 pm CDT.

    Tags: commodities
    Jul 12 9:45 PM | Link | Comment!
  • Potential H&S Pattern In The S&P 500 Has 1287 As An Objective

    Note: For this Instablog entry we'll be using the June e-mini S&P 500 futures contract. The June contract is running at a 4.17 discount to cash, so add roughly 4 points to derive the equivalent cash levels.

    We used the cash S&P 500 for previous articles. Sorry for any confusion, but the concept is the same.

    An emerging Head and Shoulders pattern in the June e-mini S&P's can become fully formed given a close below 1358.75 on Friday, where the neckline (trendline) arrives.

    The minimum measuring objective would be 1283.50 (a 5.5% decline from 1358.75), which is derived from the pattern amplitude of 75.25 subtracted from 1358.75.

    Normally a daily close below this neckline/trendline is used to confirm the pattern and also to act as the point of entry.

    But given how near the market is to this neckline currently (late Thursday afternoon at the time of this writing), then if a steep sell-off were to occur Friday, waiting for an end-of-day entry could be very deep.

    For those with quicker triggers, an initiating stop-entry could be used at 1350.00 - which would be 2.5 points below the April 10 low of 1352.50.

    With 1283.50 as a potential objective (again adding 4 points would be 1287.50 in the cash), and an entry at 1350 (blue horizontal line on chart), then a stop-exit at 1375 (purple horizontal line on chart) would have over a 2.5:1 profit-to-loss ratio including slippage.

    This would be a bearish technical justification for my Range Contraction Indicator mentioned in my last article.

    Note that this neckline (trendline) has a positive slope of three ticks per trading day, so if Friday's close isn't below 1358.75, then this neckline will arrive at 1359.50 for Monday's trading day.

    See the chart below (CQG graphics):

    (click to enlarge)Daily chart of the June e-mini S&P 500 contract

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 19 3:55 PM | Link | Comment!
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